Did you work a second job or “side gig” in 2020? If so, then there are several ways it could impact your taxes—including the type of deductions you can take. This can include above-the-line deductions, which means they can come off your adjusted gross income even before you have to choose between the standard deduction and itemizing.
As such you can still get many deductions even if you take the standard deduction.
You have to pay taxes on any side gig earnings, but you may qualify for a twenty percent pass-through deduction if you are using a pass-through legal entity, including an LLC or S corporation. This deduction was introduced by the Tax Cuts and Jobs Act of 2017 (TCJA), and it essentially allows for many businesses to deduct twenty percent of their qualified business income before adding it to their tax bill.
The Home Office
For most people, the old home office deduction was eliminated—even during the pandemic when people were forced to work remotely—with the introduction of the TCJA. However, self-employed individuals and those who own their own businesses can still qualify for the home office deduction if a portion of the home or property is set aside for business. This is still true whether you live in a house, apartment, mobile home or even a boat! It also applies to outbuildings including a garage, barn or workshop.
Health Insurance Deductions
If you set up your own health insurance under your business, you may be entitled to deduct the cost for yourself, but also your spouse, your dependents and even adult children who are under age twenty-seven. The catch here is that your business must show a net profit, and you can't use health insurance as a way to create losses. Likewise, to take the deductions you must be an LLC owner, a partner, or more than a two percent shareholder in an S-corp.
If your side gig involves your car, then you are entitled to deduct the dollar value of business miles traveled on your tax return and the Internal Revenue Service (IRS) set the rate at 57.5 cents for 2020 as the standard mileage deduction. Additionally, self-employed taxpayers can choose to deduct the actual operating expenses instead and go with the higher option.
Many people may think of a side gig as a true hustle, like working for a ride-sharing service. But in other cases, your side gig could be a way to launch a business or new career.
As such any educational expense or out-of-pocket expenses for training that could be required to help advance that new gig can be potentially tax-deductible. Likewise, it could include those individuals who take classes to expand their skill set. The same holds true for memberships to professional organizations.
Peter Suciu is a Michigan-based writer who has contributed to more than four dozen magazines, newspapers and websites. He regularly writes about military small arms, and is the author of several books on military headgear including A Gallery of Military Headdress, which is available on Amazon.com.