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Question
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
Answer

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). Use the Keeper Tax ap to identify all your eligible write-offs!

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Sarah York, EA

Sarah is a staff writer at Keeper Tax and has her Enrolled Agent license with the IRS. Her work has been featured in Business Insider, Money Under 30, Best Life, GOBankingRates, and Shopify. She has nearly a decade of public accounting experience, and has worked with clients in a wide range of industries, including oil and gas, manufacturing, real estate, wholesale and retail, finance, and ecommerce. Sarah has extensive experience offering strategic tax planning at the state and federal level. During her time in industry, she handled tax returns for C Corps, S corps, partnerships, nonprofits, and sole proprietorships. Sarah is a member of the National Association of Enrolled Agents (NAEA) and maintains her continuing education requirements by completing over 30 hours of tax training every year. In her spare time, she is a devoted cat mom and enjoys hiking, baking, and overwatering her houseplants.

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