Side Hustle Taxes Part III: Business Mileage and Home Office Deduction

business tips side hustle taxes tax tips

So you have a side hustle and you're probably confused about how to pay taxes on your side hustle income.

Am I right?

Navigating the tax landscape with a side hustle can be confusing, but you've come to the right place! This is a three-part series aimed at simplifying the tax puzzle for your side hustle and this one is number three of three.

In this blog post, we're diving into two key areas that can save you big bucks on your tax return: business mileage and the home office deduction. I'll show you the most straightforward way to deduct your business mileage and how to properly take advantage of the home office deduction.

For those of you who don't know me, my name is Noel Lorenzana. I'm a CPA with over 25 years of experience. I'm here to help folks with side hustles like you demystify taxes and get a handle on their finances. I also believe that you should pay no more in taxes than you legally owe and that you don't need to be afraid of taxes or the IRS.

Read on as I'll be sharing some essential insights with you answering questions about your side hustle taxes that you can't easily find anywhere else.

Let's get to it.

How to Deduct Business Mileage for Side Hustle?

To deduct your business mileage for your side hustle, you'll need to track and document the miles you drive for business purposes. Recordkeeping is essential. You'll need to maintain a detailed log where you note the date, purpose of each trip and the miles driven.

It's essential to differentiate between personal and business use miles. There are various apps available that can help automate this tracking process, such as MileIQ, which is what I recommend.

So there are two methods the IRS allows: The Actual Expense Method and The Standard Mileage Rate Method.

For this blog post, I'll cover the standard mileage rate method since it's easier to calculate and often gets you the highest deduction.

The Standard Mileage Rate Method.

The IRS provides a standard mileage rate that covers the cost of operating your vehicle, including things like gas, depreciation and repairs.

To calculate your deduction, you multiply the miles driven for your business by the standard mileage rate. The rate can change year to year, so be sure to check the current rate on the IRS website.

So, for example, if the standard mileage rate is 70 cents per mile and you drove a thousand miles for your side hustle, your mileage deduction would be $700, meaning you can take a $700 deduction on your tax return.

For most, this is typically reported on Form Schedule C, Profit or Loss From Business. Lastly, remember that commuting miles, which are like driving from your home to a regular workplace and back, are not deductible.

Do you know that if you're ever audited and you don't have a mileage log, the IRS can disallow your entire deduction. So you need a mileage log.

How Do You Take The Home Office Deduction On Your Tax Return?

When it comes to maximizing tax savings for your side hustle, the home office deduction is a valuable deduction that often gets overlooked. This example assumes your tax does a sole provider, which most are.

Home Office Deduction: Exclusive and Regular Use

Do you know that there are some specifics you need to know to claim it correctly? But let's make it super simple.

Exclusive and Regular Use.

This is crucial. The space you're deducting must be used exclusively and regularly for your side hustle business. This means if you're using a corner of your bedroom as an office, you can't claim the whole room just that specific corner and you can't use that corner for anything else but for your business.

There are two methods to calculate your home office deduction: The Actual Expense Method and The Simplified Method.

Now, while both are valid, for the sake of simplicity and ease, I'll go over The Simplified Method.

Home Office Deduction: The Simplified Method

With the simplified method, you can deduct $5 for every square foot of your home office space, up to 300 square feet.

So if your home office is 150 square feet, that's a $750 deduction. Simple math, no fuss with digging into utility bills, rent payments, or mortgage interest.

While the simplified method is, well, simple, it's still essential to keep good records, jot down the measurement of your space, take some photos, and note its exclusive use for your business.

When filling out your tax return, you'll need to use Form 8829 to claim the home office deduction. If you're using tax software or consulting with a tax professional, they'll guide you through the process.

In summary, if you're running your side hustle from your home and you have a dedicated space for it, don't miss out on this valuable deduction.

By choosing the simplified method and ensuring the exclusive and regular use of your space, you're setting yourself up for both tax savings and a smoother tax filing experience.

Did I deliver on my promise? I really hope I did.

Free E-book: Ultimate Guide to Side Hustle Taxes

As my way of saying thank you for taking the time to read, I have a special gift for you. It's my ultimate guide to side hustle taxes. It's packed with tons of information and a downloadable PDF that you can download for free. Go grab that while you're thinking about it. Thank you so much and I hope to see you again soon!

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About The Author

Noel Lorenzana is an Illinois-licensed, Registered Certified Public Accountant with over 20 plus years of experience.

Through his online educational content, YouTube videos, easy-to-understand courses and 1-on-1 consulting, he gives you the tools to become tax savvy for yourself. 

Disclaimer: Any accounting, business or tax advice contained in this article, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.