Side Hustle Tax Guide
Whether you drive for Uber, sell on Etsy, or consult on the side, your side hustle income is taxable and generally subject to self-employment tax of 15.3% plus income tax. Proper tracking and deductions can dramatically reduce what you owe.
The IRS considers most side hustle income as self-employment income. If you earn $400 or more from a side gig in a year, you must file Schedule C (Profit or Loss from Business) and Schedule SE (Self-Employment Tax). You also need to make estimated quarterly tax payments if you expect to owe more than $1,000. Many gig workers are surprised by the tax bill come April because no taxes were withheld throughout the year.
For example, a teacher earning $60,000 from their day job also drives for Uber Eats, earning $15,000 in 2025. The $15,000 is subject to self-employment tax ($15,000 × 92.35% × 15.3% = $2,119) plus income tax at their marginal rate of 22% ($3,300). Total additional tax: $5,419. If they didn't make quarterly payments, they could face underpayment penalties too.
However, side hustles come with rich deduction opportunities. Vehicle expenses: 67 cents per mile driven for business (2025 rate). If they drove 8,000 miles for deliveries, that's a $5,360 deduction. Other common deductions include: phone and internet (business percentage), supplies, home office deduction, health insurance premiums, and retirement contributions. Tracking these accurately is essential.
Record-Keeping Best Practices
Use a dedicated business bank account and credit card. Track mileage immediately (apps like QuickBooks Self-Employed, MileIQ, or Stride). Save receipts for any expense over $75. Create a simple spreadsheet or use accounting software. The IRS recommends keeping records for at least 3 years from the filing date, or 6 years if you underreported income by more than 25%.
FAQs
Do I need a business license for my side hustle?
Requirements vary by city and state. Many require a basic business license, and some regulate specific activities (food service, childcare, transportation). Check your local city and county requirements. Operating without the proper license could mean fines and lost deductions.
Can I deduct my home internet and phone?
Yes, but only the business-use percentage. If you use your phone 30% for business, you can deduct 30% of the bill. If you have a dedicated business phone line, 100% is deductible. Internet follows the same proportional rule. The IRS generally doesn't allow deduction of the first phone line into a home, but second lines and proportional sharing are fine.
What if my side hustle loses money?
A loss on Schedule C can offset your other income (wages, investment income), reducing your overall tax bill. However, if your side hustle shows losses for multiple years, the IRS may classify it as a hobby under the "hobby loss rules" and disallow the deductions. To avoid this, operate with a profit motive, maintain good records, and structure it professionally.