What You Can and Can't Deduct in Your Side Hustle (Most People Get Tax Deductions Wrong)

"A 2024 report from McKinsey & Company found that 36% of employed Americans - roughly 58 million people - identify as independent workers, with many using side hustles to supplement their primary income. When you're building something on the side - whether it's freelance coding, selling vintage finds or coaching clients - every dollar of revenue feels hard-won. So when tax season arrives, the real question isn't just how much you made, but how much you get to keep."

"A recent Bankrate survey found that 27% of U.S. adults now have a side hustle, driven largely by the need to diversify income in an uncertain economy. This is no longer pocket change - it's real business. And with it comes the need to understand deductions properly, not guess at them. As CEO of Dimov Tax, I've seen both extremes. Some clients try to deduct personal expenses like Spotify subscriptions as "creative inspiration." Others go too far in the opposite direction, avoiding legitimate deductions out of fear of an audit and overpaying taxes as a result."

"Let's start with appearance. I once worked with a life coach who asked if she could deduct a new professional wardrobe because she only wore those outfits for client sessions. The answer was no. The IRS is clear: clothing that can be worn outside a specific work requirement is considered personal. Exceptions include uniforms with logos, safety gear, or costumes used strictly for performance. That manicure before an Instagram Live sale? Personal. Botox before a keynote? Still personal. These are viewed as personal enhancements, not business expenses."

"Business meals are another common misconception. A sandwich eaten while working at your desk is not deductible. Meals are only deductible when they are directly"

A McKinsey report found 36% of employed Americans identify as independent workers, often using side hustles to supplement income. A Bankrate survey found 27% of U.S. adults have a side hustle, driven by the need to diversify income in an uncertain economy. Tax season raises the question of how much income can be kept through correct deductions. Examples show common mistakes on both sides: deducting personal expenses as business costs and avoiding legitimate deductions due to fear of audits. Clothing that can be worn outside a specific work requirement is generally personal, with limited exceptions such as uniforms with logos, safety gear, or costumes used strictly for performance. Meals are not deductible when eaten as ordinary personal food while working at a desk.

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