Side Hustle Tax Deductions

Side Hustle Tax Deductions

Utilizing Legal Side Hustle Tax Deductions to Lower Your Side Hustle Tax Bill

You must file a tax return if you have net earnings from self-employment of $400 or more from gig work, even if it’s a side job, part-time or temporary. You must pay tax on income you earn from gig work.

IRS (.gov)

Tax Deductions for Gig Economy Workers

Lowering your tax bill is possible by taking advantage of legal deductions. When you work in the gig economy, you have the chance to deduct particular expenses from your self-employment income, something not possible for traditional W-2 employees.

Mileage Tracking for Rideshare Drivers

For instance, suppose you are a rideshare driver. It’s advisable to record the mileage of your car during rideshare services. This recorded mileage, which incorporates maintenance, gas, and insurance costs, can be deducted from your taxable income.

Distinguishing Between Deductible Expenses

Understanding what expenses qualify as deductions requires distinguishing between them. Regular expenses, common and accepted in your line of business, and necessary expenses, those which are beneficial and adequate for your operations, can be deducted.

Examples of Deductible Expenses

Take, for example, a ski instructor who deducts the cost of their ski boots, labeling it as a “regular expense.” Or a landscaper who deducts the rent paid for a storage space used to store tools and equipment. Even though a storage space may not be essential, it’s considered a “necessary expense” because it aids the business.

Common Deductible Expenses

Common deductible expenses from your gig job could include:

  • Business mileage on your vehicle
  • Membership fees and subscriptions paid to business-related entities
  • Required tools and equipment
  • Fees for job-related education and training
  • Home office tax deduction

Home Office Side Hustle Tax Deduction

Let’s talk more about the home office tax deduction. The way this expense is claimed has altered due to tax reform. Before the Tax Cuts and Jobs Act passed in 2017, employees could deduct reimbursed business expenses, inclusive of the home office deduction.

But from 2018 through 2025, the deduction for unreimbursed business expenses has been removed. So, employees can’t claim the home office deduction on their federal taxes, even if they must work from home.

Eligibility Criteria for the Home Office Deduction

For self-employed individuals or business owners, to qualify for the home office deduction, the following conditions must be met:

Exclusive and regular use

A part of your home or property must be reserved for your business operations. This applies whether you live in a house, apartment, condo, mobile home, or boat. It also includes outbuildings like a garage, barn, or workshop. It excludes any part of your property used solely as an inn or bed and breakfast.

Principal place of business

Your home office should be the hub of your side hustle activities. If you are a tradesperson, like a general contractor who can’t work from one location, it can be where you regularly conduct administrative tasks such as accounting and communications. It may also be where you routinely meet with clients or customers. There are some exceptions, such as day care and storage facilities.

Source: Intuit turbotax

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