The IRS requires you to report every dollar from your side hustle, but most gig workers leave money on the table by ignoring deductions that slash both income and self-employment taxes.
Business deductions lower your taxable income directly. This matters because self-employed workers pay 15.3 percent self-employment tax on net profits, plus ordinary income tax. A $5,000 deduction cuts your self-employment tax by $765 and income tax by 22 to 37 percent depending on your bracket. That adds up fast.
Common deductions gig workers miss include home office space, mileage, supplies, software subscriptions, and equipment. If you work from a dedicated home office, measure the square footage and multiply by your home's depreciation basis. The simplified method lets you deduct $5 per square foot up to 300 square feet. Track mileage at 67.5 cents per mile for 2025. Every trip to client meetings, supply stores, or job sites counts.
Your phone bill, internet, accounting software, and industry-specific apps qualify if used partly for work. Allocate the business percentage. Buy a laptop, camera, or tool? Depreciate it over time using Section 179 expensing or bonus depreciation, or deduct small items under $2,500 immediately.
The self-employed are eligible for a 20 percent deduction on qualified business income, meaning you can exclude that portion from income tax entirely. This requires meeting certain thresholds based on income level, but most side hustlers qualify.
Your biggest mistake is poor record keeping. The IRS scrutinizes self-employment income harder than W-2 wages. Keep receipts, mileage logs, and business payment records for at least three years. A spreadsheet works, but dedicated apps like Stride Health or