I just started a very small personal business. I’m reading online that when I file taxes I can file a standard deduction? And that as a married couple it has to be about $25,000. Problem is I have literally no idea what this means. Does it mean I have to spend $25,000 in business expenses in a year? Please help!!! And please, really dumb this down for me 🙂
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There are a number of things which are income tax except. Things such as medical expenses, state and local taxes, mortgage loan interests, charitable contributions, business expenses, etc. It is very hard to keep track of each of these items throughout the year. So to make it easier for regular people to file taxes you have the option to just say “I do not know” when asked to list all of the things that should be deducted from your income when calculating taxes. If you do this then the IRS just assumes your deductibles based on the table of standard deductions. So what they are saying as that you probably spent $25,000 on non-taxable expenses throughout the year.
I do not know much about US tax laws but I would be surprised if you are allowed to file a standard deduction when you run a personal business unless this is very small. And even if you can file a standard deduction it will probably be better to file itemized deduction as the business expenses gets over the standard deduction very fast.
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