10 Tax Deductions Side Hustlers Frequently Miss

By David Talley, CFP®

If you're earning extra income from a side hustle, congratulations—you're part of the entrepreneurial economy! While bringing in extra cash is exciting, it comes with tax responsibilities that many people don't expect. The good news? The IRS offers many deductions that can reduce your taxable income and save you thousands.

Unfortunately, side hustlers often overlook these deductions simply because they don't know about them or don't track their expenses properly. Here are 10 commonly missed deductions to help you maximize your hard-earned income.

1. Home Office Deduction

If you work from home, whether it's designing websites, selling handmade goods, or freelancing, you may qualify for the home office deduction. This doesn't mean you need an entire room dedicated to your business—a corner of your living room, bedroom, or even a garage can qualify, as long as it's used exclusively and regularly for business purposes.

You can deduct a percentage of your rent or mortgage interest, property taxes, homeowners/renters insurance, utilities, and even maintenance costs. The deduction is calculated based on the square footage of your home office as a percentage of your home's total square footage.

Simplified Option: If calculating the exact percentage feels overwhelming, the IRS offers a simplified method—$5 per square foot, up to 300 square feet (a $1,500 maximum deduction).

Caution: The space must be used only for business, so your kitchen table won't qualify if your family eats dinner there.

2. Internet and Phone Expenses

Chances are, you use your phone and internet for your side hustle—whether it's managing social media, communicating with clients, or handling transactions. You can deduct the portion of these expenses used for your business.

For example, if 30% of your phone use is for business purposes, you can deduct 30% of your phone bill. Similarly, if you're using high-speed internet to upload content or manage a website, that portion can be written off as well.

Pro Tip: Keep a detailed log of how much time or data you use for business versus personal activities. You can also get a separate business phone or internet plan to simplify tracking.

3. Mileage and Vehicle Expenses

Driving to meet clients, deliver products, or even run errands for your business (like picking up supplies)? You can deduct those miles. The IRS allows two ways to calculate this deduction:

1. Standard Mileage Rate: For 2023, the rate is 65.5 cents per mile. Simply track your business-related miles and multiply by the rate.
2. Actual Vehicle Expenses: Deduct the portion of your gas, insurance, repairs, and maintenance costs related to business use.

App Tip: Use mileage-tracking apps like MileIQ or Everlance to automatically log your trips.

Important: Commuting to and from a primary job isn't deductible, but side hustle trips are fair game. Keep a log of the date, purpose, and distance of each trip for IRS compliance.

4. Equipment and Supplies

If you purchase items essential to your side hustle—whether it's a laptop, camera, ring light, or crafting materials—they're deductible as business expenses. Small items (like office supplies or tools) can typically be deducted in full the year you purchase them. Larger items (like a computer) may need to be depreciated over several years.

Bonus Tip: If you spend less than $2,500 on a single item, you may qualify for the IRS's de minimis safe harbor rule, which lets you deduct the full cost in the first year.

5. Professional Development

Every class, webinar, or certification you take to improve your skills in your side hustle is deductible. Whether you're learning advanced graphic design techniques, taking a social media marketing course, or attending a business conference, these expenses reduce your taxable income.

Pro Tip: Travel costs to attend professional development events (like airfare, hotels, and meals) are also deductible, as long as the trip is primarily for business purposes.

6. Advertising and Marketing

If you're paying for Instagram ads, Google Ads, a professional logo, or even business cards, you're investing in your business—and the IRS recognizes that. Advertising and marketing expenses are 100% deductible.

This also includes website costs, such as hosting, domain fees, and design services. Regularly reviewing these costs can help you find ways to save while ensuring you don't miss any deductions.

7. Business Meals

Whether you're meeting a client for lunch, grabbing coffee while discussing a project, or eating out during a work trip, business meals are 50% deductible. To qualify, the meal must be directly related to your business, and you need documentation to prove it.

Documentation Tip: Save your receipts and write down who you met with and what was discussed. For example: "Coffee with Jane Doe to discuss marketing strategies for Etsy shop."

8. Bank and Payment Processing Fees

Do you have a separate business checking account? The monthly maintenance fees are deductible. If you use payment platforms like PayPal, Stripe, or Square, those transaction fees are also tax-deductible.

Example: If Stripe charges 2.9% + $0.30 for every transaction, you can deduct that amount from your taxable income.

9. Software Subscriptions

Many side hustlers rely on software to stay productive. Tools like QuickBooks, Canva, Adobe Creative Suite, or social media scheduling platforms are all fully deductible. Even one-time software purchases may qualify.

Pro Tip: Check your credit card statements for any recurring charges related to software. These are often easy to overlook.

10. Business Insurance

If your side hustle requires liability insurance or other types of coverage, those premiums are deductible. Whether you're insuring your photography equipment, protecting yourself as a freelancer, or covering general business risks, this is a valuable deduction many people miss.

Bonus: If you work from home, part of your homeowners or renters insurance may also qualify as a deduction under the home office rule.

Success Story: How Sarah Saved Big

Sarah, a freelance photographer, had been running her side hustle for years but never tracked her deductions. After consulting with a tax professional, she discovered she could deduct her home office, camera equipment, editing software, mileage to shoots, and even her advertising expenses. By organizing her receipts and applying these deductions, Sarah reduced her taxable income by over $15,000, saving her thousands in taxes.

Her key takeaway? Good record-keeping and knowledge of deductions can make a huge difference.