Top 10 IRS Side Hustle Deductions

Introduction

Figuring out tax deductions can feel overwhelming, especially when you are trying to make the most of every break available for your side hustle. You are already juggling a full-time job on top of your side gig, so digging through a long list of expenses to figure out what actually qualifies as an IRS deduction can feel like one more thing on an already full plate… That is why we created a Top 10 IRS deductions and write-offs list designed specifically for side hustlers. 

From home office expenses to real estate investing benefits, we’ll walk through practical ways to potentially maximize your tax savings while staying within IRS guidelines. So grab your receipts, log into your QuickBooks account, and let’s get started on optimizing the financial side of your side hustle. 

Side Hustle Deduction I: Home Office Deductions

Whether you are a homeowner or a renter, you are eligible to claim the deduction for any type of home (ex. a single-family home, an apartment, a condo or even a houseboat). It is not applicable for a hotel or other short-term lodging purposes. Learn more HERE. 

Side Hustle Deduction II: Cell Phones

If you are self-employed and use your cellphone for business purposes, you are eligible for a tax deduction for that usage. You cannot deduct personal use of the phone. Learn more HERE. 

Side Hustle Deduction III: Auto

If you use your car exclusively for work, you may be able to deduct the full cost of owning and operating it, subject to certain limits! If that car is used for both business and personal driving, you can only deduct the portion related to business use. Generally, if you use your vehicle 50% or more for business, the actual expense method may make the most sense. Otherwise, the standard mileage deduction is often the better option. 

The standard mileage rate method or the real expense (actual) method are the two main approaches to deducting your car expenses. You might want to figure out your deduction both ways before choosing one to see which one gets you a bigger deduction if you are eligible for both. Learn more HERE. 

Side Hustle Deduction IV: Dining

Are you going out to eat with your side hustle clients? If so, you can write off 50% of the cost of the meal, including taxes and tips, on your taxes as long as it was a business meal. Business owners may be able to deduct the costs of meals and beverages provided during an entertainment event. Learn more HERE. 

Side Hustle Deduction V: Travel

If you’re traveling for side hustle work away from your tax home or main place of work, you can deduct the cost of your trip. According to the IRS, a taxpayer is traveling away from home if: 

• They’re away for longer than an ordinary day’s work, and… 
• They need to sleep to meet the demands of their work while away. 

Learn more HERE. 

Side Hustle Deduction VI: Equipment/Tools/Supplies

You can depreciate most types of tangible property (except land), such as buildings, machinery, vehicles, furniture, and equipment. You can also depreciate certain intangible properties, such as patents, copyrights, and computer software. 

To qualify for depreciation, the property must meet all of the following requirements: 

• It must be the property you own. 
• It must be used in your business or income-producing activities. 
• It must have a determinable, useful life. 
• It must be expected to last more than 1 year. 

Learn more HERE. 

Side Hustle Deduction VII: Family Members – Pay Kids, Under 18, No W2

One of the advantages of operating your own business is hiring family members! However, employment tax requirements for family employees may vary from those that apply to other employees and your entity structure. Payments for the services of a child under age 18 are not subject to social security and Medicare taxes.  If the child is 18 years+, then payments for the services of a child are subject to social security and Medicare taxes. Learn more HERE. 

Side Hustle Deduction VIII: Medical

A Health Savings Account (HSA) is a tax-advantaged way to save money. HSA contributions reduce taxable income, investment growth in the account is tax-free, and qualified withdrawals are tax-free. Money left over at the end of the year in an HSA is not forfeited and can be rolled over from year to year. You must have a high-deductible health plan (HDHP) to open an HSA. 

All employer contributions to Health Reimbursement Accounts (HRAs) that meet IRS rules are 100% tax deductible to the employer and tax-free to the employee. 

Learn more HERE. 

Side Hustle Deduction IX: Professional Fees or Educational Expenses

You can write off the expense of certain work-related education as business costs. This is education that meets at least one of the following two tests: To be deductible, your expenses must be for education that  

1. Maintains or improves skills needed in your present work or… 
2. Your employer or the law requires you to keep your present salary, status or job 

Learn more HERE. 

Side Hustle Deduction X: Real Estate

If you receive rental income from the rental property, there are certain rental expenses you may deduct on your tax return. These expenses may include mortgage interest, property tax, operating expenses, depreciation, and repairs. 

You can deduct the ordinary and necessary expenses for managing, conserving, and maintaining your rental property. Ordinary expenses are those that are common and generally accepted in the business. Necessary expenses are those that are deemed appropriate, such as interest, taxes, advertising, maintenance, utilities, and insurance. Learn more HERE.