Starting a home-based side hustle isn’t just a great way to pay off debt and build financial security—it can also unlock huge tax savings that traditional employees don’t get. By leveraging the right deductions, you can keep more of your earnings, reinvest in your business, and accelerate your path to financial freedom.
In this article, we’ll break down the biggest tax benefits of a home-based side hustle and how you can take full advantage of them.
1. The Home Office Deduction
One of the biggest perks of running a side hustle from home is the home office deduction. If you use a portion of your home exclusively for business, you can deduct expenses like rent, mortgage interest, property taxes, and utilities.
How It Works:
- The IRS allows you to deduct a portion of your home expenses based on the percentage of your home used for business.
- There’s also a simplified option where you can deduct $5 per square foot (up to 300 sq. ft.).
Potential Savings: $1,000–$5,000 per year
Pro Tip: Keep records of your home expenses and take photos of your workspace in case of an audit.
2. Deducting Business Expenses
A home-based side hustle lets you write off business-related expenses, reducing your taxable income. These can include:
- Office Supplies: Computers, printers, notebooks, pens, etc.
- Software & Subscriptions: Canva, QuickBooks, website hosting, and domain fees.
- Marketing Costs: Facebook ads, business cards, email marketing tools.
- Education & Training: Online courses, certifications, business books.
Potential Savings: $500–$5,000+ per year, depending on business expenses.
Pro Tip: Use a dedicated business credit card or bank account to track deductible expenses easily.
3. Internet & Phone Bill Deductions
If you use your phone and internet for your home business, you can deduct a portion of these expenses.
How It Works:
- Determine what percentage of your internet and phone use is for business.
- Deduct that portion from your taxable income.
Potential Savings: $300–$1,500 per year
Pro Tip: If you use your phone mostly for business, consider getting a separate business line to maximize deductions.
4. Vehicle & Mileage Deductions
If your home-based hustle requires driving (e.g., meeting clients, deliveries, picking up supplies), you can deduct mileage and car-related expenses.
Two Deduction Methods:
- Standard Mileage Deduction: The IRS allows a deduction of $0.67 per mile (2025 estimate).
- Actual Expense Method: Deduct vehicle expenses like gas, insurance, repairs, and depreciation.
Potential Savings: $1,000–$6,000 per year
Pro Tip: Use apps like MileIQ or Everlance to track business mileage automatically.
5. Retirement Contributions (SEP IRA, Solo 401k)
Traditional employees are limited in how much they can save for retirement pre-tax, but as a home-based entrepreneur, you have better options.
Best Tax-Advantaged Retirement Accounts:
- SEP IRA: Contribute up to 25% of net income (up to $69,000 in 2025).
- Solo 401(k): Higher contribution limits than traditional 401(k)s for self-employed people.
Potential Savings: $5,000–$20,000 per year (depends on income and contributions).
Pro Tip: Even if your side hustle is small, starting these accounts early helps you build wealth tax-free.
6. Health Insurance Premium Deductions
If your home-based business is your main source of income, you may qualify to deduct your health insurance premiums.
Eligible Deductions:
- Health insurance for yourself, spouse, and dependents.
- Dental and vision insurance.
Potential Savings: $2,000–$10,000 per year
Pro Tip: This deduction is available only if you are not eligible for an employer’s health plan.
7. Self-Employment Tax Deductions
Self-employed individuals pay both the employer and employee portion of Social Security and Medicare taxes, totaling 15.3%. However, the IRS allows you to deduct half of this amount.
How It Works:
- If you owe $5,000 in self-employment taxes, you can deduct $2,500 from your taxable income.
Potential Savings: $1,000–$5,000 per year
Pro Tip: Set aside 25–30% of your side hustle income for taxes to avoid surprises.
8. Business Travel & Meal Deductions
If your home-based business requires travel, you can deduct:
- Flights & Hotels: Fully deductible if the trip is for business.
- Meals: 50% deductible when traveling for work.
- Conference Fees: Industry-related events and networking costs.
Potential Savings: $500–$5,000 per year
Pro Tip: Keep all receipts and document the business purpose of your travel expenses.
Final Thoughts
A home-based side hustle isn’t just about earning extra income—it’s about maximizing tax savings to keep more of what you make. By taking advantage of home office deductions, business expenses, mileage deductions, retirement contributions, and more, you can potentially save thousands every year.
If you’re looking for ways to pay off debt faster, build wealth, and legally reduce your taxes, a home-based side hustle is one of the smartest financial moves you can make.
Next Steps
- Need help starting a home-based side hustle? Check out our Side Hustle Playbook at awoodstg.wpenginepowered.com!
- Want to maximize your tax savings? Consult with a tax professional to ensure you’re getting the deductions you qualify for.
Have a question about home-based business tax deductions? Drop it in the comments below!