Yes, you can write off expenses for a side hustle, provided the activity is intended to make a profit. These expenses are deducted from your side hustle income, which lowers your overall taxable income and reduces your tax liability.
Common Tax Deductions for Side Hustlers
Absolutely. It's your responsibility to keep full and accurate records of all sales, income and business expenses – even if you use a tax agent or accountant. You'll need this information to complete your tax returns properly.
The biggest tax mistakes people make include filing late, math errors, incorrect personal info (like Social Security numbers), forgetting deductions/credits (like EITC), misreporting income, not signing forms, and making errors with bank details for direct deposit, all leading to delays, penalties, or missed savings, with using tax software or professionals helping avoid these common pitfalls.
You must report all your hobby income, but you can't deduct any expenses from it. Before 2018, you could deduct hobby expenses if you itemized deductions. If your hobby is a business, you can use Schedule C to report profits and losses and deduct some expenses.
The IRS allows taxpayers to deduct up to $3,000 of realized investment losses ($1,500 if married filing separately) against ordinary income each year. This deduction applies only to losses in taxable investment accounts and must be realized by December 31st to count for that tax year.
Yes, interest paid on business loans is generally 100% tax-deductible as a business expense. This includes interest on business credit cards, lines of credit, mortgages for business property, and equipment loans.
20 Common Tax Deductions: Examples for Your Next Tax Return
Business expenses you can report if you're self-employed
These factors are whether:
The taxpayer puts time and effort into the activity to show they intend to make it profitable. The taxpayer depends on income from the activity for their livelihood. The taxpayer has personal motives for carrying out the activity such as general enjoyment or relaxation.
A recent tax law ("One Big Beautiful Bill") introduced a new $6,000 bonus deduction for Americans aged 65 and older, available for tax years 2025-2028, reducing taxable income, not the tax itself, with income phase-outs starting at $75,000 MAGI for singles and $150,000 for joint filers. This deduction adds to existing standard deductions, provides up to $12,000 for couples, and requires a Social Security number and filing status other than Married Filing Separately.
You can claim up to $3,000 in net capital losses ($1,500 if married filing separately) to offset ordinary income after using losses to wipe out capital gains; any remaining loss can be carried forward indefinitely to future years, reducing future gains and income. For business or rental losses, rules differ, often involving Net Operating Loss (NOL) rules or specific passive activity loss limits.
Tax-loss harvesting can be a valuable strategy for many investors, but its worth depends on your financial situation and goals. It might be worthwhile if you're in a high tax bracket or have significant realized capital gains since it can offset those and reduce your tax liability.
The "3-year hobby rule," or IRS Hobby Loss Rule, is a tax guideline stating that if an activity makes a profit in three out of five consecutive years, the IRS presumes it's a legitimate business for tax purposes, not a hobby, allowing for business expense deductions; otherwise, it's presumed a hobby, and losses can't offset other income. The IRS examines factors like business-like operations, expertise, and time spent, but the profit test is a strong indicator, with exceptions for horse-related activities (2 of 7 years).
Many business expenses are 100% deductible, including advertising, employee wages, rent, supplies, and certain business meals like company parties or meals for the public, while personal deductions like student loan interest or charitable donations (depending on the type) can also be fully deductible for individuals. The key is that the expense must be "ordinary and necessary" for your trade or business or meet specific IRS criteria, often differentiating from the 50% rule for client meals.
Who Is Audited More Often? Oddly, people who make less than $25,000 have a higher audit rate. This higher rate is because many of these taxpayers claim the earned income tax credit, and the IRS conducts many audits to ensure that the credit isn't being claimed fraudulently.