Hello, I am a W-2 employee but want to start a sole propriater (Schedule-C) business on the side. Does the standard deduction only apply to one of those incomes or is it split between them? Thank you
Answered by Keeper Staff ·
Great question! Deductions confuse most people. The short answer: It applies to both. Your W-2 income and Schedule C income are added together on line 9 of your 1040 resulting in your “total income” for the year. Your total income is reduced by your standard deduction, and income tax is calculated on the remainder.
However, as a soon-to-be sole proprietor, there are more deductions you can take than just the standard deduction!
On your Schedule C, you’re able to reduce your business income with business expenses which will bring your taxable income down (resulting in less tax overall).