3 Side Gig Tax Deductions People Misuse — and What Experts Say To Do Instead
Written by
Josephine Nesbit
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Jenna Klaverweiden
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A side gig is a great way to earn some extra cash, but it also means you’re responsible for handling your own taxes.
Tax deductions can help reduce what you owe Uncle Sam; however, they’re easy to misuse. “You can only write off business expenses that are directly related to your business,” Jay Zigmont, Ph.D., MBA, CFP, founder and CEO of Childfree Trust, wrote in an email.
These are the three most commonly misused side gig tax deductions, according to experts.
Also see four tax deductions side gig workers can’t afford to miss.
Home Office Deduction
“The home office deduction is probably one of the most frequently abused deductions,” claimed Misha Rose, entrepreneur and financial educator. “Individuals frequently attempt to claim this deduction when they do not meet the very strict requirements, namely, using a specific area in their home for only regular business activities.”
According to the IRS, you must use your home for your business on a regular basis. This could be your house, apartment, condo, mobile home, boat or similar structure.
This means you wouldn’t qualify if your workspace doubles as a personal area. For example, answering emails from your couch or using your dining table for both meals and work doesn’t meet the IRS’ “exclusive use” requirement.
Vehicle Expenses
According to Rose, overstating vehicle expenses is another common mistake. “This may result in an audit finding that you have reported incorrect expenses and possible penalties,” she said.
To make sure you don’t overstate your expenses, you’ll need to keep detailed records.
“If you are trying to write off your vehicle for business, you need to account for both business and personal use. Owning a business doesn’t mean your vehicle is a 100% write-off for the business,” Zigmont explained.
He recommended keeping a journal of miles driven and assigning a percentage to each business and personal use.
Personal Expenditures
There’s also the abuse of reporting personal expenditures as business expenses. “Such expenditures could include meals, travel, subscriptions, etc., that are not related to generating income,” Rose explained.
If done knowingly, this is tax fraud. Even if it’s a mistake, it could result in back taxes, penalties, interest and a potential audit.
“I’ve seen people try to write off dinners and travel when they have nothing to do with their business,” Zigmont said. “To write off a meal for your business, you need to have conducted business at the meal, such as working on a deal with a client.”
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