Is there a dollar threshold for when something should be depreciated vs just expensed? Like if my desk was only $300, do I still need to depreciate it or can I just deduct it all at once under supplies/furniture?

There's actually a "de minimis safe harbor election" that lets you expense (rather than depreciate) items that cost less than $2,500 per item or invoice. So for your $300 desk, you could absolutely deduct it all at once instead of depreciating it over several years. Many small business owners don't know about this and end up creating unnecessary complexity by depreciating smaller items. For slightly larger purchases, Section 179 expensing is another great option that lets you deduct the full cost of qualifying equipment in the year you put it into service, rather than depreciating it. The limits are quite generous for small businesses (up to $1,160,000 for 2023).

Simplified method is WAY easier but usually results in a smaller deduction in my experience. I tracked both methods for two years and regular method gave me about $1,200 more in deductions. Depends on your situation though.

Thanks for the recommendation! I've heard good things about TaxAct from a coworker too. Did you find their interface easy to use? I'm not super tax-savvy and need something that explains things clearly.

Their interface is pretty straightforward and they explain tax concepts in plain English. They use a question-based approach that helps catch things like HSA contributions without you needing to know which specific forms are required. The help sections are quite clear with examples, and if you get stuck, they have decent customer support through chat. For someone who isn't tax-savvy, they offer good guidance without overwhelming you with jargon. Their review system also catches common errors before you file.

FreeTaxUSA is such an underrated option. Been using them for 4 years now and they handle everything correctly including my rental property and side business. None of the upselling garbage that TurboTax does either.

Can you explain more about how to document this? Like what kind of proof would you need to show the IRS that your education is "ordinary and necessary" for your business? I'm taking some digital marketing courses and want to deduct them for my Etsy shop.

Documentation is crucial. I keep a business education folder with: course descriptions/syllabi highlighting specific skills taught, a written explanation connecting each course to specific aspects of my current business operations, evidence that these skills are industry standards (like professional association recommendations), and a log tracking how I've implemented these skills in my business. For your digital marketing courses and Etsy shop, save the course descriptions, then create a document explaining how each marketing technique directly applies to growing your existing Etsy business. Track your marketing metrics before and after implementing what you learn to show business purpose. If similar businesses commonly use these marketing techniques, note that as evidence that the education is "ordinary" in your field.

That's a really good point about credits vs deductions! I think business expense deductions don't have the same caps as education credits though? At least that was my understanding. Can you take BOTH the business education deduction AND education credits for the same expenses?

But what happens if the amount the company reports paying you (if they filed anything before going bankrupt) doesn't match what you report? Could that trigger an audit?

That's a good question. If there's a discrepancy, it potentially could raise a flag in the IRS system. However, if you're reporting based on your actual income records (bank deposits, etc.), you're still doing the right thing. If the company reported incorrectly before going bankrupt, that's their mistake, not yours. Just make sure you have documentation of all the income you received - bank statements, invoices, contracts, emails confirming payments. If you're ever questioned, you can show you reported based on your actual earnings. The IRS is generally understanding when you can show you made a good-faith effort to report accurately.

CA resident here too. The Franchise Tax Board definitely wants documentation, but I found they accepted my own records (invoices + bank statements) when I couldn't get a 1099 from a client who went out of business. I included a brief statement explaining the situation with my filing.

Thank you SO MUCH for the reassurance! One more question - does it matter that my husband only lived in the US for about 2 months of the tax year? I wasn't sure if that would affect our ability to file jointly.

You're welcome! Regarding your husband's residency situation, as long as he has a valid SSN and is a legal permanent resident by December 31st of the tax year, you can file jointly for the entire year. The IRS doesn't prorate based on when during the year he arrived. Since you mentioned he got his SSN and is a green card holder, you're definitely eligible for Married Filing Jointly status for the full year, even though he was only physically present for a couple months. This is actually working in your favor tax-wise!

Are you claimed as a dependent on someone else's taxes? If your parents claim you, THEY get the education credits, not you. That might explain the difference.