Hey everyone,
2024 will be my first year officially running my business, and I’ll be filing taxes on my personal return. I’ve been keeping great records of my income and expenses, so calculating my profit/loss will be easy. I’m just a little confused about what I’ll be paying taxes on.
Will I be taxed based on my gross income or net income? For example, if I buy more business supplies or upgrade equipment before the end of the year to reduce my net income, would that benefit me for taxes?
You pay taxes on your net business income.
How would buying stock reduce your net business income, though?
Echo said:
You pay taxes on your net business income.
How would buying stock reduce your net business income, though?
Sorry about the confusion! I meant if I buy business supplies or upgrade equipment before the year ends, those would be considered business expenses, which would reduce my net income.
@Skyler
Yes, reducing your profit means reducing the taxes you pay. But keep in mind, you want to think about whether those expenses will save you more this year or next. You don’t want to offset low income this year just to increase taxable income next year.
@Echo
Perfect, that’s exactly what I was looking for. Thanks so much!
Skyler said:
@Echo
Perfect, that’s exactly what I was looking for. Thanks so much!
Depending on the equipment, you might need to amortize it rather than deducting it all in one year. Also, have you been making estimated tax payments?
@Jensen
I haven’t been making estimated payments. It’s a part-time business, so the income and expenses aren’t large yet.
You pay taxes on net profit, which is gross revenue minus allowable deductions. For a full list of deductible expenses, check out the Schedule C instructions.
Supplies are typically deductible, but keep in mind that your goal as a business is to maximize your profits after tax, not just to minimize your taxes. Spending money just to get a tax break isn’t always the best strategy. As for equipment, depending on the type and cost, it may either be fully deductible or you may need to depreciate it over time. Be mindful not to buy unnecessary equipment just for the sake of a tax deduction.
@Harper
I plan to work with an accountant this year to ensure I don’t miss anything and get some professional advice on running my business. While I don’t really need the equipment right now, it would definitely be a worthwhile investment in terms of productivity and saving time. I’m just trying to figure out if it’s better to make the purchase now or wait.
@Skyler
What kind of equipment are you looking at, and how much will it cost? That’ll be a big factor in deciding whether you can deduct it all in 2024 or if you’ll need to spread it out.
Tavi said:
@Skyler
What kind of equipment are you looking at, and how much will it cost? That’ll be a big factor in deciding whether you can deduct it all in 2024 or if you’ll need to spread it out.
It’s car detailing equipment, including polishers, pressure washers, and some shelving/storage. Total cost should be around $2k.
@Skyler
In that case, you should be able to deduct 100% of those expenses in 2024. Look into the ‘de minimis safe harbor’ election, which could allow you to expense the full amount this year.
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