Is there a reason why my Nano is begin powered up through digital pins. I have toggle switches that I want to read either HIGH or LOW . I'm using an external 5v power supply to the switches. I don't have a USB plugged into it or anything going to the VIN pin. When I flip a switch the nano powers up.
Yes. As your setup uses positive switching switches you will power up your board.
BUT! Each pin can handle 1mA max. You may already have damaged some I/O pins.
Using switches switching to ground with the internal pull up resistors, this will not happen.
Your circuit is quite small, it can easily be supplied from the 5V pin when powered by USB.
Powering with 7V to the barrel jack is also possible.
With 12V to the barrel jack you will approach a limit for heat dissipation in the 5V regulator.
The project is a pan/tilt camera that is approx 250' from my house using cat5. I have a control box in the house with a joystick. The box is powered with 12v and then steps down to 5v to go to the switches When I power on the box it sends 12V to the Nano and to a 12V light (not connected to the Nano). In the code the first thing that happens is a relay is turned on which has 110V to power up a security camera and a 24V 20amp power supply that supplies power for a nema 23 stepper motor driver and a Cytron MDDS30 motor driver, which powers 2 electric scooter motors (Pan/Tilt) with gear reductions. The site where I made the schematic don't have the components to draw everything.
It is also called parasitic powering, and will damage the Arduino pin / board.
This happens because you are not powering the Arduino from your power supply. The simple solution is to run +5V and ground from your power supply to the 5V pin and one of the ground connections on the Arduino.
The input to the 12V to 5V buck should be connected AFTER the keyswitch not directly to the 12V supply. That way the keys won't be powered if the Arduino is not powered, so no back-powering will occur.