Big Change in Tax Situation

gnomon

I have been retired for years and my taxes have been simple. I haven't had to do anything to have taxable income low enough to have zero taxes.

That is about to change. I have been investing in courses and purchasing equipment for my new business, teaching martial arts online via a YouTube channel and Online Course offerings.

I actually started purchasing equipment LAST YEAR and have added more this year, plus I started taking courses to help me do this.

WHAT should my strategy be for itemizing my expenses for this year's taxes?

I do not plan to reap any income from this effort and expenses until sometime in 2024, but I made significant business purchases last year (not needed to file and have zero taxes) and this year's expenses. The total of business expenses of this sort is in excess of $5000.

When I do this year's taxes for filing in April I will easily be able to take the Standard Deduction and end up paying zero taxes. For 2024, that will be a different story, but my expenses that will cause that increase are from this year and last year.

I am confused as to how I should be using these expenses to benefit my taxes. Can I use last year's and this year's expenses to offset next year's taxes?

MatthewD

Hello Gnomon,

First, congratulations on starting your new online martial arts training! Many people have found Youtube a great way to earn some additional money.

Yes, you can use those expenses to offset the income you start producing in 2024. Let me explain how.

Since this is an income producing activity and you are the sole-proprietor, you would report the business income and expenses on a Schedule C. None of the expenses are reported as Itemized Deductions. The net business income or losses are then reported to the Form 1040.

Let me explain what you do with the business assets and start-up costs.

Business Assets - One of the nice things about being a sole-proprietor, is you can transfer personal assets to a business very easily. When you start a Schedule C for 2024, you will list the assets on the Depreciable Assets page. Similar assets purchases and placed into service can be combined together if you want. Otherwise, list each new asset, choosing the category and the software will calculate the expense for you. If you bought an asset in 2022 and placed it into service in 2024, then the depreciation expense begins in 2024. When you place it into service, make sure you use the fair market value of the asset if it has been used and decreased in value. It is was new, use the purchase price.

Start-up Costs: Up to $5,000 of start-up costs can be expensed in the first year you start doing business. These are expenses you incurred before the start of doing business. Keep in mind that these are generally regular expenses you would have while doing business. For example, legal costs, advertising, office expenses, utilities, supplies, etc. Enter that as a Miscellaneous Business Expenses in the Common Expense section of the Schedule C with 'Start-up Costs" as the description. The remaining costs must be capitalized and amortized as a depreciable asset over a period of 15 year or 180 months.

Good luck with your business!