With more people working remotely or having their hours cut, many have ventured into different businesses by creating a side hustle. They have turned their passion or interests into an income. What they may not realize is, this new side hustle could have deductions when filing taxes. I want to share 10 deductions your side hustle might be missing I learned from my professional experience:
Start-up Costs: include every penny you spent while starting your new business. Incorporation costs, licensing fees, and computer and software expenses, among others, are deductible.
Cost of sold goods: everything you buy to make money will be deductible. Purchases made to resell, costs of parts, and raw materials used for inventory are deductible.
Basis: if you contribute an asset, the value of the asset will be transferred to the business, tax free, and serve as a base when selling or disposing of the asset.
Car and travel: any miles or travel expenses are deductible if used for your side hustle. Business miles used for business purposes, or actual car expenses, such as gas, maintenance, and depreciation are deductible. Tolls and parking costs are deductible. Actual travel costs incurred for business purposes are deductible.
Home office: if there is a room in your house you turned into your home office, that portion of your house can be deducted as a non-cash expense, because you already pay to be there. Portions of rent, mortgage interests, utilities, home improvements, and depreciation can be deducted.
Cell phone, phone, or fax line: the usage you give your cell phone, phone, or fax line is deductible. If the line is only used for your business, it is deductible in full. A portion of your cell phone can be allocated to your business. A dedicated phone or fax line is fully deductible.
Meals: with clients, or potential clients, meals are 50-percent deductible for tax purposes.
Advertising Fees: include all those expenses you make in order to promote your product, and they are 100-percent deductible. Facebook and Instagram ads are deductible. Business cards are deductible. Event expenses, such as location, catering, and souvenirs, are deductible.
Postage and other supplies: this mostly applies to people doing online business and require shipping. Those who use eBay, for example, need to pay close attention to this deduction. Packing tape, boxes, and postage used on sending products are deductible. Paper, pens, pencils, and clips, among others, are deductible.
Qualified Business Income Deduction: after the 2018 reform, small businesses qualify for a business income deduction. Certain businesses qualify for a deduction of up to 20-percent of their qualified business income.
These are 10 of the deductions you can take advantage of when working on your side hustle. As most of us are working from home, these are important to keep in mind when filing taxes. You should also keep in mind, there will come a time when your side hustle is ready to become an established business. When this time comes, I recommend starting as a Limited Liability Company and move on to an S-Corporation when it becomes profitable. Until then, take advantage of these deductions your side hustle might be missing.
This post was contributed by: Mirel Barcelo, the founder and owner of Corp 1 Financial Services, LLC, where she offers her comprehensive services as a CPA in Florida.