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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Regardless of your employment status, the concept of the Standard Deduction is the same. Basically, it’s just a default amount of your income excluded from taxes if you choose not to itemize (list out) all of your tax-deductible expenses.
For most people’s situations, you’re typically better off with the Standard Deduction, which in 2021 is $12,550 for single/$25,100 joint. However, note that even with the standard deduction, certain expenses (such as some business expenses, mortgage interest deduction, etc) can still be applied.
If you’re using some sort of tax software it ideally should walk you through everything and let you know whether you should take the standard deduction or not. If you’re doing everything by paper, only way to know for sure which one is better is to fill out all of the associated forms for deductions and then see if the total amounts are above the standard deduction or not.
But again, in most cases the Standard Deduction is best. But also don’t take tax advice from Reddit, seek a professional.
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