What Can I Deduct for a Side Hustle? A Simple Tax Guide
Photo by Kelly Sikkema
If you made money from a side hustle this year, congratulations! That’s a huge deal and absolutely something worth celebrating.
Earning income outside of your regular paycheck takes initiative, time, and follow-through. Especially when you’re balancing family life, work, and everything else competing for your attention.
At the same time, that extra income often brings a new question with it:
What does this mean for my taxes?
For many side hustlers, tax season brings a mix of pride and uncertainty.
Not because paying taxes is the problem, but because it’s hard to know what you’re allowed to deduct…and easy to worry about getting it wrong.
That uncertainty leads a lot of people to overpay.
Not intentionally, but simply because they don’t realize which expenses count or how deductions actually work.
Side hustle deductions exist to reduce the amount of your income that’s subject to tax. They aren’t loopholes or aggressive strategies. They’re part of how the tax system is designed to work for anyone earning money outside of a W-2 job.
This guide will walk you through what you can deduct for a side hustle, how those deductions lower your tax bill, and how to track expenses in a way that fits real life.
The goal is provide some clarity so you can keep more of what you earned without turning tax season into a second job.
As always, please consult a tax professional. The below is for educational purposes only and should not be considered as financial, legal, or tax advice.
What Counts as a Side Hustle (and When Deductions Apply)
Before getting into deductions, it helps to understand how the IRS generally views side hustle income.
A side hustle is any activity you do with the intent to earn money outside of a traditional W-2 job.
It doesn’t need to be full-time, registered as a business, or especially complex to count.
Common examples include freelancing or consulting, selling products online, content creation or coaching, gig or delivery work, and local services.
What matters most is profit intent. If you’re actively trying to earn income (even on a small scale) the IRS typically treats that activity as self-employment.
That’s when deductions come into play.
Most side hustlers report their income and expenses on Schedule C (Form 1040), which is filed alongside their personal tax return.
You don’t need to form an LLC to do this, and many people operate as sole proprietors by default.
Additionally, if your side hustle involves freelance, contract, or gig work, the IRS has specific guidance on managing taxes, reporting income, and preparing throughout the year.
One distinction worth understanding is the difference between a business and a hobby. Activities done purely for personal enjoyment without a reasonable expectation of profit generally don’t qualify for deductions.
On the other hand, making an effort to earn income, keep records, and operate with intention supports business treatment.
The key thing to know here is if you earned money from a side hustle and had expenses related to earning that money, deductions likely apply.
With that foundation in place, the next step is understanding how deductions work and what the IRS means when it says expenses must be “ordinary and necessary.”
The Golden Rule of Side Hustle Deductions
Most questions about side hustle deductions come down to one simple standard the IRS uses again and again.
To be deductible, an expense must be ordinary and necessary for your side hustle.
In practical terms, that means the expense helps you earn income and makes sense for the type of work you do.
An expense is generally considered ordinary if it’s common in your line of work.
An expense is generally considered necessary if it’s helpful and appropriate for running your side hustle.
You don’t need to justify every decision as long as the expense clearly connects to earning money.
For example:
A laptop used for freelance work usually qualifies
Software that helps you deliver services or manage clients usually qualifies
Advertising or marketing expenses usually qualify
On the other hand, personal expenses don’t automatically become deductible just because you have a side hustle.
When something is used for both personal and business purposes, only the business portion is deductible.
That’s why partial deductions are common.
Examples:
Using your phone for both personal and business use
Sharing internet service with your household
Driving a personal vehicle for business tasks
In these cases, the deductible portion is based on reasonable usage. Consistency matters more than precision.
Documentation matters, but it doesn’t have to be complicated
You don’t need a complex accounting system to claim deductions properly.
What does help:
Keeping receipts or digital records
Using one account or card for business expenses when possible
Reviewing expenses monthly instead of scrambling at tax time
Good documentation supports your deductions and makes tax season significantly less stressful.
A simple way to sanity-check deductions
If you’re ever unsure whether something qualifies, ask yourself:
Does this expense directly support my side hustle?
Would I still buy this if I didn’t have the side hustle?
Clear answers usually point you in the right direction.
Understanding this rule makes everything else easier.
Once you know how the IRS evaluates deductions, identifying what qualifies becomes much more straightforward and much less intimidating.
Common Side Hustle Deductions (Most People Miss These)
Once you understand the “ordinary and necessary” rule, most side hustle deductions fall into place.
The challenge is that many of the most valuable deductions don’t look obvious at first, especially when your side hustle fits around family life.
Below are some of the most common deductions side hustlers qualify for, along with guidance on how they typically apply.
Home Office
If you use part of your home regularly and exclusively for your side hustle, you may qualify for a home office deduction.
This can include:
A dedicated room
A clearly defined workspace used only for business
The space must be used consistently for work, not shared with homework, TV time, or guests.
Qualifying home office expenses often include a portion of:
Rent or mortgage interest
Utilities
Insurance
Repairs related to the space
Many side hustlers use the IRS’s simplified method based on square footage, which keeps calculations straightforward.
Internet and Phone
If your side hustle relies on internet or phone use, a portion of those costs is often deductible.
Examples:
Using home internet to manage clients or run an online store
Using your phone for calls, emails, or scheduling
Only the business portion is deductible.
Estimating reasonable usage is common, and consistency matters more than exact percentages.
Equipment and Supplies
Items purchased primarily for your side hustle typically qualify as deductions.
This can include:
Laptops, monitors, or tablets
Cameras, microphones, or lighting
Office supplies
Tools or equipment used to deliver services
Some larger purchases may be depreciated over time, while many smaller items can be deducted in the year you buy them.
Software, Tools, and Subscriptions
These expenses often add up quietly and are easy to overlook.
Common examples:
Design or editing software (ex. Canva)
Accounting or invoicing tools
Scheduling platforms
Website hosting
Email marketing services
If the tool helps you run or grow your side hustle, it usually qualifies.
Marketing and Advertising
Money spent promoting your side hustle is generally deductible.
This includes:
Paid ads
Website design or maintenance
Branding or logo design
Business cards and promotional materials
Marketing expenses are considered a normal part of operating a business.
Education and Training
Education expenses may qualify when they help you improve or maintain skills related to your current side hustle.
Examples include:
Online courses
Workshops or certifications
Industry memberships
The key factor is relevance to the work you’re already doing.
Professional Services
If you pay for help related to your side hustle, those costs often qualify as deductions.
Examples:
Tax preparation or accounting
Legal advice
Bookkeeping support
These services help you operate and stay compliant.
Mileage and Vehicle Use
If you use your vehicle for side hustle activities, you may be able to deduct:
Business mileage using the standard mileage rate, or
A portion of actual vehicle expenses
Driving between business locations, client visits, or supply runs often qualifies. Regular commuting does not.
Tracking mileage consistently throughout the year makes this deduction much easier to support.
These deductions don’t require aggressive strategies or complex structures. They reflect normal expenses that come with earning income on the side.
Side Hustle Deductions by Type of Business
While the rules around deductions are the same for everyone, the types of expenses that apply tend to vary based on how you earn your side hustle income.
Seeing examples tied to specific kinds of work can make things click much faster.
Below are common side hustle types and the deductions that often show up for each.
Freelancers and Consultants
This includes writers, designers, marketers, developers, coaches, and anyone offering services based on their expertise.
Common deductions often include:
Home office expenses
Internet and phone usage
Software and subscriptions
Professional education or certifications
Accounting or legal services
These side hustles tend to have fewer physical expenses but rely heavily on tools and systems.
Online Creators and Digital Businesses
This category includes content creators, course creators, newsletter writers, and anyone selling digital products or services online.
Common deductions often include:
Equipment such as cameras, microphones, or computers
Editing or design software
Website hosting and email platforms
Marketing and advertising
Internet usage
Digital businesses often have recurring subscription costs that add up over time.
Delivery Drivers and Gig Workers
This includes rideshare drivers, food delivery drivers, and other app-based gig work.
Common deductions often include:
Mileage or vehicle expenses
Phone usage
Supplies related to the work
Mileage tracking is especially important here, as vehicle-related deductions often make the biggest impact.
Local Service Providers
This category includes cleaners, handymen, tutors, photographers, landscapers, and other service-based side hustles.
Common deductions often include:
Tools and equipment
Vehicle usage for travel to job sites
Supplies
Marketing materials
These side hustles often blend physical expenses with time-based work.
Product Sellers and E-commerce Businesses
This includes people selling physical products online or in person.
Common deductions often include:
Inventory and materials
Packaging and shipping supplies
Platform or marketplace fees
Software used to manage sales
Marketing and advertising
Inventory-related expenses are often a core part of these businesses.
Understanding which deductions are common for your type of side hustle helps you focus your attention where it matters most.
It also makes it easier to track expenses consistently throughout the year.
What You Can’t Deduct (and Common Mistakes to Avoid)
Understanding what doesn’t qualify as a deduction is just as helpful as knowing what does. This section tends to bring relief, because it draws clear boundaries and removes a lot of the guesswork.
Most deduction issues don’t come from people trying to game the system. They come from honest confusion about where personal life ends and business use begins.
Here are the most common areas where side hustlers get tripped up.
Personal Expenses
Personal expenses don’t become deductible simply because you have a side hustle.
Examples include:
Personal groceries
Household utilities not tied to a home office
Family cell phone plans without a business-use portion
Personal entertainment
Only the portion of an expense that directly supports your side hustle qualifies.
Everyday Clothing
Clothing is only deductible if it’s specialized and required for your work.
In most cases, this means:
Uniforms
Protective gear
Clothing with a business logo that isn’t suitable for everyday wear
Regular clothes (even if you wear them while working) don’t qualify.
Commuting
Driving from home to a W-2 job or a regular workplace isn’t deductible.
Mileage generally qualifies when you’re:
Driving between business locations
Traveling to meet clients
Running errands directly related to your side hustle
Understanding this distinction keeps mileage deductions clean and defensible.
Meals Without a Clear Business Purpose
Meals are deductible only when they have a legitimate business purpose, such as:
Meeting with a client or collaborator
Traveling for business
Everyday meals, coffee runs, or family dining don’t qualify.
Hobby Expenses
Activities done primarily for personal enjoyment without a reasonable expectation of profit don’t qualify for deductions.
If an activity generates income occasionally but isn’t operated with intention, it may be classified as a hobby.
Keeping records, making efforts to earn income, and treating the activity seriously all support business classification.
Common Tracking Mistakes
Even when expenses qualify, poor tracking can create issues.
Mistakes to watch for:
Mixing personal and business expenses without notes
Guessing at numbers months later
Claiming 100% business use when personal use exists
Simple, consistent tracking avoids these problems entirely.
Clear boundaries reduce stress and build confidence. When you know where the lines are, claiming deductions becomes straightforward and routine instead of stressful.
How to Track Side Hustle Expenses Without Going Crazy
You don’t need a complicated accounting setup to track side hustle expenses well. You just need a system that’s easy enough to stick with during busy weeks.
Most side hustlers run into trouble not because they lack information, but because tracking feels like one more thing competing for attention.
The goal here is consistency, not perfection.
Keep business activity as separate as possible
One of the simplest ways to stay organized is to create separation between personal and side hustle finances.
This might look like:
A separate checking account for side hustle income and expenses
A dedicated credit or debit card used only for business purchases
This approach makes it much easier to review expenses later and reduces the chance of missing deductions.
Capture expenses as they happen
Relying on memory months later rarely works.
Helpful habits include:
Saving digital receipts
Taking photos of paper receipts
Adding short notes when an expense has both personal and business use
Small actions in the moment save significant time later.
Track mileage consistently
If your side hustle involves driving, mileage tracking deserves special attention.
Many people choose to:
Use a mileage tracking app
Keep a simple log with dates, purpose, and miles driven
Consistency matters more than choosing a perfect method.
Do a short monthly review
A quick monthly check-in keeps everything current and manageable.
This can be as simple as:
Reviewing transactions
Categorizing expenses
Making sure receipts are saved
Fifteen minutes once a month often prevents hours of cleanup later.
Use tools that fit your comfort level
Some side hustlers prefer spreadsheets. Others use bookkeeping apps. Both work.
For what it’s worth, I use a simple Google Sheet.
What matters most is choosing something you’ll actually use.
Simple tools are often better than feature-heavy ones that go untouched.
Tracking doesn’t need to be time-consuming or stressful.
With a few habits in place, expense tracking becomes part of your routine rather than something you dread at tax time.
How Side Hustle Deductions Actually Reduce Your Tax Bill
One of the most common misunderstandings about deductions is how they actually work.
Deductions don’t reduce your taxes dollar-for-dollar. Instead, they reduce the amount of your income that’s subject to tax.
That distinction matters.
Here’s a simple way to think about it.
If your side hustle earned $10,000 and you had $3,000 in qualifying deductions, you’re only taxed on $7,000 of that income. The remaining $3,000 is excluded from taxation entirely.
That reduction applies to both:
Income tax
Self-employment tax
For side hustlers, this is especially important because self-employment tax covers Social Security and Medicare and applies on top of regular income tax.
Why deductions matter more for side hustlers
Side hustle income doesn’t have taxes withheld automatically like a W-2 paycheck does.
That means deductions play a larger role in managing what you owe.
Reducing taxable income through deductions can:
Lower your total tax bill
Reduce quarterly estimated payments
Make tax season more predictable
Each legitimate deduction softens the impact of earning extra income.
Small deductions add up
Many side hustlers underestimate the cumulative impact of expenses.
Individually, a software subscription or mileage log may not seem meaningful. Over the course of a year, those costs often add up to thousands of dollars in deductions.
Those deductions translate directly into money you get to keep.
The goal isn’t to eliminate taxes
Paying some tax on side hustle income is normal and expected. The goal is to be as accurate as possible.
Claiming deductions you’re entitled to helps ensure:
You’re not overpaying
Your side hustle remains financially worthwhile
Your income growth doesn’t create unnecessary stress
When deductions are tracked consistently, tax season becomes a review process instead of a surprise.
When to DIY Your Taxes (and When to Get Help)
Many side hustlers successfully handle their taxes on their own, especially in the early stages.
Others choose to get professional help as their income grows or their situation becomes more complex.
Both approaches are valid. The right choice depends on your comfort level, time, and the complexity of your finances.
When doing it yourself usually works well
DIY tax filing is often a good fit if:
Your side hustle income is modest
Your expenses are straightforward
You’re using common deductions
You feel comfortable following step-by-step guidance
Modern tax software can handle Schedule C and self-employment taxes effectively for many people. When expenses are well-tracked, the process tends to be manageable.
When getting help can be worth it
Professional help may make sense if:
Your side hustle income is growing quickly
You’re unsure about how to categorize expenses
You’re juggling multiple income streams
You want peace of mind and confirmation
An accountant or tax professional can help ensure deductions are claimed correctly and help you plan ahead, not just file a return.
Think of help as support, not a failure
Getting help isn’t a sign you’ve outgrown your side hustle or “can’t handle” taxes. It’s often a sign that your income is becoming more meaningful.
Many people start by filing on their own and later transition to professional support as their situation evolves.
Regardless of which path you choose, the goal is to have confidence when tax season hits.
A Final Word on Side Hustle Deductions
Earning money from a side hustle is something to be proud of.
It takes effort, initiative, and follow-through…especially when you’re building it alongside work, family, and everything else life throws your way.
Understanding what you can deduct for a side hustle isn’t about gaming the system. It’s about making sure you’re keeping more of what you earned and not creating unnecessary stress around taxes.
When you know the basic rules, track expenses consistently, and focus on what’s ordinary and necessary for your work, deductions become routine instead of intimidating.
Over time, that clarity makes your side hustle feel more sustainable and more rewarding.
If you want to learn more about side hustles and investing in the future, you can check out my free weekly newsletter.
It’s action-based and designed for busy parents doing their best to build momentum without burning out.
FAQ: What Can I Deduct for a Side Hustle?
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You can deduct ordinary and necessary expenses related to earning your side hustle income.
Common deductions include supplies, equipment, software, marketing, mileage, professional services, and a portion of home expenses if you qualify for a home office.
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No. You can deduct side hustle expenses as a sole proprietor without forming an LLC.
Most people report income and expenses on Schedule C as part of their personal tax return.
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You may qualify for a home office deduction if you use a specific area of your home regularly and exclusively for your side hustle.
Shared or multipurpose spaces generally do not qualify.
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Yes, but only the business portion.
If you use your phone or internet for both personal and business purposes, you can deduct the percentage related to your side hustle.
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If you drive for business purposes. such as client meetings, deliveries, or supply runs, you may be able to deduct mileage or vehicle expenses.
Commuting to a W-2 job does not qualify.
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Personal expenses, everyday clothing, regular commuting, and meals without a business purpose generally don’t qualify.
Hobby expenses without profit intent are also not deductible.
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A side hustle loss may offset other income in some cases, but repeated losses over multiple years can raise questions about whether the activity is a business or a hobby.
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Receipts or digital records are strongly recommended.
Good documentation supports your deductions and makes tax filing much easier.
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Yes. Side hustle income is subject to both income tax and self-employment tax, which covers Social Security and Medicare.
