If you have a side hustle or a part-time job alongside your regular employment, you may be wondering whether you can deduct the expenses associated with it on your taxes. The good news is, depending on certain criteria, you may be eligible for tax deductions related to your side hustle. By understanding the rules and guidelines set by the IRS, you can potentially reduce your tax liability and keep more of your hard-earned money. In this article, we will explore the requirements for deducting expenses for your side hustle and provide you with the necessary information to ensure you make the most of your tax deductions.

What is a side hustle?

Definition of a side hustle

A side hustle refers to any type of income-generating activity that you pursue outside of your regular job. It is a way to make extra money and can range from freelancing, tutoring, selling handmade crafts, or even starting a small online business. It’s a great way to explore your passions, diversify your income, and potentially turn your side gig into a full-time career if that’s your ultimate goal.

Popular types of side hustles

Side hustles have become increasingly popular in recent years due to the gig economy and the flexibility they offer. Here are some of the most popular types of side hustles:

  1. Freelancing: Many people offer their skills and services as freelancers, such as writing, graphic design, coding, or consulting, which allows them to take on various projects on a part-time basis.
  2. E-commerce: Starting an online store or using platforms like Etsy or eBay to sell products has become a popular side hustle for those who are crafty or have a passion for creating unique goods.
  3. Ride-sharing and delivery services: With the rise of companies like Uber, Lyft, and DoorDash, many individuals use their own vehicles to earn extra money by providing transportation or delivering food.
  4. Renting out properties: If you have an extra room or a second property, you can rent it out on platforms like Airbnb or VRBO to generate additional income.
  5. Tutoring or teaching: If you have expertise in a particular subject or skill, you can offer your services as a tutor or teach online courses, benefiting others while earning money.

These are just a few examples, but the possibilities for side hustles are endless. It’s all about finding something that aligns with your interests, skills, and available time.

Understanding tax deductions

What are tax deductions?

Tax deductions are expenses that can be subtracted from your total income, reducing the amount of income that is subject to taxation. While you may be familiar with deductions for things like mortgage interest or charitable contributions, you may not realize that many expenses related to your side hustle may also be eligible for deductions.

Types of expenses that may be deductible

When it comes to side hustle expenses, there are several categories that can potentially be deductible:

  1. Business-related expenses: These include costs directly related to your side hustle, such as purchasing supplies, maintaining equipment, or hiring subcontractors.
  2. Home office expenses: If you have a designated space in your home that is used solely for your side hustle, you may be able to deduct a portion of your rent or mortgage, utilities, and internet expenses.
  3. Travel and transportation expenses: If your side hustle requires you to travel for business purposes, such as meeting clients or attending conferences, you may be able to deduct mileage, airfare, lodging, and meals.
  4. Education and training expenses: If you invest in courses or workshops to improve your skills or knowledge for your side hustle, these expenses may be deductible.
  5. Marketing and advertising expenses: Costs associated with promoting your side hustle, such as website development, online ads, or business cards, may be deductible.
  6. Equipment and supplies expenses: Purchasing equipment or supplies directly related to your side hustle, such as a computer, camera, or art materials, may be deductible.

It’s important to keep in mind that not all expenses are eligible for deductions, and there may be specific requirements and limitations to consider.

Requirements for deducting expenses on taxes

To qualify for deductions related to your side hustle, the expenses must meet certain criteria:

  1. Ordinary and necessary: The expenses must be considered ordinary and necessary for your side hustle. This means they are common and accepted within your industry and directly contribute to the operations of your business.
  2. Profit motive: The IRS requires that you have a profit motive and are actively pursuing your side hustle with the intention of making a profit. They may scrutinize deductions if your side hustle consistently generates losses year after year.
  3. Documentation: You must keep accurate and detailed records of your expenses, including receipts, invoices, and any other relevant documentation. These records will be essential when claiming deductions and may be required in case of an audit.

Determining eligibility for deductions

Qualifying for a deduction for a side hustle

To determine your eligibility for deductions related to your side hustle, consider the following factors:

  1. Business vs. hobby: The IRS distinguishes between a legitimate business and a hobby. A business is operated with the intention of making a profit, while a hobby is pursued for personal enjoyment. To qualify for deductions, you must demonstrate that your side hustle is a legitimate business.
  2. Income and expenses: Take into account your income and expenses related to your side hustle. If your expenses exceed your income for multiple years, the IRS may question whether your side hustle is genuinely aimed at generating profit.
  3. Time and effort: Show that you are investing significant time and effort into your side hustle. If it’s a sporadic hobby rather than a consistent business, it may be harder to justify deductions.

Conditions for deducting expenses

To deduct expenses for your side hustle, you must meet the following conditions:

  1. You must maintain adequate records: As mentioned earlier, keeping detailed records of your expenses is crucial. This includes documenting the date, amount, purpose, and business relationship of each expense.
  2. The expenses must be directly related: The expenses you deduct must have a clear and direct connection to your side hustle. They must be incurred while conducting business activities and not for personal use.
  3. Proportional deductions: If an expense is partially related to your side hustle and partially for personal use, you can only deduct the portion that is directly tied to your business. For example, if you use your cellphone for both personal and business purposes, you can deduct the percentage of usage that is attributed to business calls.

It’s important to consult with a tax professional or advisor to ensure you comply with all requirements and regulations when it comes to deducting expenses for your side hustle.

Types of deductible expenses

Ordinary and necessary expenses

Ordinary and necessary expenses refer to costs that are common and accepted in your particular industry. These expenses are considered essential for running your side hustle. Some examples of ordinary and necessary expenses include:

  • Office supplies
  • Website hosting fees
  • Software subscriptions
  • Professional association memberships
  • Printing and postage costs
  • Business insurance premiums

Remember to keep all receipts and relevant documentation to support these deductions.

Business-related expenses

Business-related expenses encompass a wide range of costs directly associated with your side hustle. These may include:

  • Purchasing inventory or raw materials
  • Shipping and packaging supplies
  • Advertising and marketing expenses
  • Equipment maintenance and repairs
  • Hiring and subcontractor fees
  • Legal and professional fees

These expenses are crucial for maintaining and growing your side hustle, and they can significantly reduce your taxable income.

Home office expenses

If you have a dedicated space in your home that is used exclusively for your side hustle, you may be able to deduct certain home office expenses. These can include:

  • Rent or mortgage interest
  • Utilities (electricity, water, gas)
  • Internet and phone expenses
  • Home improvements directly related to the home office (painting, repairs, furniture)

To claim these deductions, you generally need to calculate the percentage of your home that is used for business purposes and apply that percentage to the total expenses.

Travel and transportation expenses

If your side hustle requires you to travel for business purposes, you may be eligible for deductions on your transportation-related expenses. These can include:

  • Mileage: If you use your personal vehicle for business travel, you can deduct the mileage traveled for business purposes at the IRS-approved rate.
  • Airfare, train, or bus tickets: If you need to fly, take a train, or use public transportation for your side hustle, the costs can be deductible.
  • Lodging and meals: Expenses for overnight stays and meals during business-related travel can also be deducted.

Keep in mind that the IRS has specific rules and limitations for travel expenses, so it’s essential to understand and follow them to ensure accurate deductions.

Education and training expenses

Investing in education and training to enhance your skills or knowledge for your side hustle can be deductible. This includes the cost of workshops, courses, conferences, or certifications that directly benefit and improve your business. Be sure to keep records of these expenses, such as receipts or invoices.

Marketing and advertising expenses

Promoting your side hustle is essential for attracting customers and growing your business. Marketing and advertising expenses that can be deductible include:

  • Website development and hosting fees
  • Social media advertising costs
  • Business cards and flyers
  • Online ads on platforms like Google or Facebook
  • Promotional giveaways and samples

These expenses actively contribute to the visibility and success of your side hustle, making them eligible for deductions.

Equipment and supplies expenses

Purchasing equipment and supplies that are directly related to your side hustle can be deductible. Some examples include:

  • Computers, laptops, or tablets
  • Cameras, lenses, or other photography equipment
  • Art supplies
  • Tools and machinery
  • Office furniture
  • Software and apps

Remember to keep accurate records and receipts for all equipment and supplies you purchase, as they may be necessary to support your claims during tax season.

Keeping accurate records

Importance of record-keeping

Keeping accurate records for your side hustle is vital for several reasons:

  1. Proof for deductions: Detailed records act as evidence to support the deductions you claim. In case of an audit, you’ll need to provide thorough documentation of your expenses.
  2. Financial management: Good record-keeping allows you to track your income and expenses, providing a clear picture of your side hustle’s financial health and helping you make informed decisions.
  3. Compliance: The IRS requires you to maintain proper records for at least three years for business-related expenses. If you fail to produce these records upon request, you may lose the ability to claim deductions.

Types of records to keep

Here are some of the key records you should keep for your side hustle:

  1. Receipts and invoices: Keep all receipts and invoices for your expenses, including purchases, equipment repairs, and website hosting fees. These documents should include details such as the date, amount, purpose, and business relationship.
  2. Bank and credit card statements: Retain copies of your bank and credit card statements, as they provide a clear record of income and expense transactions related to your side hustle.
  3. Mileage logs: If you use your personal vehicle for business travel, maintain a mileage log that tracks the distance traveled, purpose of each trip, and dates. This will be crucial for calculating deductions.
  4. Contracts and agreements: Keep copies of any contracts, agreements, or invoices related to your side hustle, especially those involving clients, subcontractors, or service providers.
  5. Tax forms and filings: Keep copies of your tax returns, W-2s, and 1099s, as these documents provide a comprehensive overview of your side hustle’s financial activities.

Organizing and storing records

To ensure your records are well-organized and easily accessible, consider the following tips:

  1. Separate business and personal finances: Keep your personal and business finances separate by using separate bank accounts and credit cards for your side hustle. This will simplify record-keeping and allow for clearer financial tracking.
  2. Digitize your records: Consider scanning your receipts and invoices to create digital copies. This reduces the risk of losing physical copies and makes it easier to search for specific records when needed.
  3. Use accounting software or apps: Utilize accounting software or mobile apps designed for small businesses and freelancers. These tools can assist in tracking income and expenses, generating reports, and organizing financial records.
  4. Set up a filing system: Create a logical filing system, whether physical or digital, that allows you to easily sort and retrieve different types of records. Use categories like income, expenses, taxes, and contracts for efficient organization.

By implementing these record-keeping practices, you’ll have peace of mind knowing that your side hustle’s financial records are properly maintained and readily available when needed.

How to claim deductions

Reporting deductions on tax forms

To claim deductions for your side hustle, you will generally use the Schedule C form (Profit or Loss from Business) in addition to your regular tax return. This form allows you to report your income and deductible expenses.

Filling out Schedule C

When filling out Schedule C, here are the key sections to complete:

  1. Part I: Income: Enter the total income you earned from your side hustle during the tax year.
  2. Part II: Expenses: Deductible expenses are reported in this section. You will need to categorize your expenses based on their nature, such as advertising, supplies, or travel. Be sure to include all relevant expenses and provide accurate figures.
  3. Part V: Other Expenses: This section allows you to report expenses that may not fit into the standard categories provided in Part II. Examples include legal fees, bank fees, and software subscriptions.
  4. Part VI: Vehicle Expenses: If you used your personal vehicle for business purposes, you’ll need to calculate and report deductible vehicle-related expenses using either the standard mileage rate or actual expenses. Be prepared to provide mileage logs or other supporting documentation.
  5. Part VII: Other Information: In this section, you may need to answer additional questions or provide specific details if certain circumstances apply to your side hustle.

Make sure to review the instructions and guidelines provided with the Schedule C form to ensure accurate completion. It is recommended to consult with a tax professional or advisor for assistance with filling out this form, especially if you are unsure about any specific deductions.

Consulting a tax professional

Navigating the complexities of tax deductions for your side hustle can be challenging, especially if you are unfamiliar with tax laws and regulations. Consulting a tax professional or advisor with expertise in small business taxation can provide many benefits:

  1. Expert advice: A tax professional can help you understand the rules and requirements surrounding deducting expenses for your side hustle. They can provide personalized advice based on your unique situation and optimize your deductions.
  2. Maximizing deductions: A tax professional can identify deductions you may not be aware of, ensuring you claim all eligible expenses and minimize your taxable income.
  3. Compliance and audit support: By working with a tax professional, you’ll have peace of mind knowing that your tax return and deductions are accurately prepared. In the event of an audit, a tax professional can assist you in gathering and organizing the necessary documentation and representing your interests to the IRS.

Potential limitations and restrictions

Limits on deductions

While deducting expenses for your side hustle can be beneficial, there are some limitations to keep in mind:

  1. Limits on certain expenses: The IRS may impose limits on specific deductions. For example, meal and entertainment expenses are generally only 50% deductible, and there are caps on the amount you can deduct for certain items like home office expenses.
  2. Personal use restrictions: If an expense has both personal and business purposes, you can only deduct the portion that is directly related to your side hustle. You cannot claim deductions for expenses that are strictly personal.
  3. Passive activity limitations: There are rules that apply to passive activities, which are activities in which you do not materially participate. If your side hustle is considered a passive activity, there may be limitations on the deductibility of losses.

It’s essential to understand these limitations and consult with a tax professional to ensure you comply with all tax regulations.

Restrictions for hobby income

If your side hustle is classified as a hobby rather than a legitimate business, there are specific restrictions to be aware of:

  1. Deduction limitations: Hobby expenses can only be deducted up to the amount of income generated by the hobby. Unlike a business, you cannot claim a loss from a hobby to offset other income.
  2. Itemizing deductions: To deduct hobby expenses, you may need to itemize deductions on your tax return, which requires more detailed record-keeping and additional documentation.

To differentiate your side hustle from a hobby, it’s important to demonstrate a consistent effort to generate profit and actively engage in business activities. If you have any doubts about the classification of your side hustle, consult with a tax professional to ensure you meet the necessary criteria.

Alternative minimum tax considerations

The alternative minimum tax (AMT) is a parallel tax system that is designed to ensure individuals who have certain types of income pay a minimum amount of tax. If your side hustle generates significant income, you may be subject to the AMT.

The AMT limits certain deductions, and the rules can be complex. It’s important to consult with a tax professional who can help you navigate the AMT and understand its impact on your side hustle deductions.

Special considerations for gig workers

Self-employment tax obligations

As a gig worker or a self-employed individual with a side hustle, you are generally responsible for paying self-employment taxes. Self-employment taxes consist of both Social Security and Medicare taxes and are typically paid by both employees and employers in a traditional work setting.

To calculate your self-employment tax, you need to complete Schedule SE (Self-Employment Tax) in addition to your regular tax return. It’s crucial to account for this additional tax liability when calculating your overall tax obligations.

Estimated tax payments

Unlike traditional employment where taxes are automatically withheld from your paycheck, as a gig worker or self-employed individual, you may need to make estimated tax payments throughout the year. Estimated tax payments are used to prepay income taxes and self-employment taxes on a quarterly basis.

To avoid underpayment penalties, which can be imposed if your estimated tax payments fall short, it’s important to estimate and pay the appropriate amount throughout the year. A tax professional can help you determine the estimated tax payments you should make based on your side hustle income.

State and local tax considerations

It’s important to consider state and local tax obligations when reporting income and deducting expenses for your side hustle. Each state and locality may have its own tax laws, rates, and regulations. Be sure to familiarize yourself with the specific requirements in your jurisdiction, including any additional forms or reporting obligations.

Consulting a tax professional who is knowledgeable about state and local taxation can ensure you comply with all applicable laws and maximize your deductions.

Seeking professional advice

Benefits of consulting a tax professional

While deducting expenses for your side hustle can be done independently, seeking the advice of a tax professional can provide numerous benefits:

  1. Expertise and knowledge: Tax professionals possess the necessary expertise and up-to-date knowledge of tax laws and regulations. They can help you navigate complex tax requirements and identify deductions you may have overlooked.
  2. Time-saving: Preparing your own taxes can be time-consuming, especially when dealing with deductions for a side hustle. A tax professional can streamline the process, ensuring accurate and efficient preparation of your tax return.
  3. Peace of mind: By working with a tax professional, you can have peace of mind knowing that your tax return is prepared accurately and in compliance with all applicable regulations. This can alleviate stress and allow you to focus on your side hustle.

Choosing the right tax advisor

When selecting a tax professional or advisor to assist with your side hustle taxes, consider the following factors:

  1. Experience and credentials: Look for a tax professional who has experience working with small businesses, freelancers, or individuals with side hustles. Obtain information about their credentials, certifications, and areas of expertise.
  2. Reputation and reviews: Research the tax professional’s reputation and read reviews or testimonials from previous clients. This can provide insight into their level of service and expertise.
  3. Communication and availability: Ensure the tax professional is accessible and responsive. Effective communication is essential for a smooth working relationship.
  4. Fees and charges: Clarify the fee structure and ensure it aligns with your budget. Some tax professionals charge an hourly rate, while others have fixed fees based on the complexity of the tax return.

By carefully considering these factors, you can select a tax professional who will effectively meet your needs and provide you with the guidance necessary for successfully navigating your side hustle taxes.


Deducting expenses for your side hustle can have a significant impact on your overall tax liability. By understanding the types of expenses that may be deductible, organizing and keeping accurate records, and seeking professional advice when needed, you can optimize your deductions while ensuring compliance with tax laws and regulations.

Remember to maintain a clear distinction between personal and business expenses, keep thorough records of all income and expenses, and consult with a tax professional to maximize the benefits of deductions for your side hustle.

With a proactive and informed approach to your side hustle taxes, you can enjoy the financial rewards of your hard work while minimizing your tax burden.