A side hustle expense on this page is an ordinary and necessary cost that belongs on Schedule C, or the self-employed health insurance deduction Form 7206 sends to Schedule 1. The simplified home office is $5 a square foot, and the area is limited to 300 square feet, so 300 times $5 is $1,500 when the full prescribed rate applies. The employee 401(k) deferral limit printed for 2026 is $24,500. That health insurance deduction is not subtracted when self-employment tax is figured. The lines below are the ones in the IRS pages named at the end, read on October 4, 2026.
Ordinary and Necessary
The instructions for Schedule C put the leftover business expenses on line 27b, and they say: "Include all ordinary and necessary business expenses not deducted elsewhere on Schedule C." The same paragraph tells you to list the type and amount of each expense, and it tells you what to leave off: the cost of business equipment or furniture, replacements or permanent improvements to property, personal, living, and family expenses, and charitable contributions. It also says you can't deduct fines or penalties paid to a government for violating any law.
Expenses unrelated to the qualified business use of the home go in Part II. The instructions' examples are advertising, wages, supplies, and depreciation of equipment or furniture. Fees charged by accountants and attorneys go on line 17 when they are ordinary and necessary expenses directly related to operating the business. That line also includes fees for tax advice related to the business and for preparation of the tax forms related to the business. Technology and software tools that are ordinary and necessary, and directly related to operating the business, can be other expenses. The instructions' examples are tax preparation software and subscription services paid to manage the business. Tools that must be depreciated or amortized are not deducted that way. Most computer software expenses must be capitalized and depreciated, or expensed under section 179.
The $5 Home Office
Publication 587 (2025) gives the simplified method this way: "In most cases, you will figure your deduction by multiplying $5, the prescribed rate, by the area of your home used for a qualified business use. The area you use to figure your deduction is limited to 300 square feet."
300 times $5 is $1,500. That product is the area cap times the full prescribed rate. An illustration of 100 square feet is 100 times $5, which is $500. The square feet are the qualified business area, not the whole home. If the space is used regularly for daycare but not exclusively, the publication says the reduced rate equals $5 times the hours the space was used for daycare, divided by the hours the space was available for all uses. The simplified method does not apply to rental use. A rental use that qualifies is figured with actual expenses. If that rental use and a qualified business use share the same area, you allocate the area and you cannot use the same square feet for both.
The area has to pass the exclusive-use test. The publication lists two uses that do not have to meet it: storage of inventory or product samples, and a daycare facility. The storage use has its own tests in that section. Publication 587 says you must use a specific area of your home only for your trade or business. The area can be a room or other separately identifiable space, and the space does not need to be marked off by a permanent partition. You do not meet the test if you use that area for business and for personal purposes. The publication's example is a den used to write legal briefs that the family also uses for recreation. That shared use fails the test. Regular use and the principal-place-of-business rules sit next to exclusive use in the same chapter. Schedule C filers figure the other method, actual expenses, on Form 8829.
The First Phone Line
Publication 587 draws the line around the home phone: "The basic local telephone service charge, including taxes, for the first telephone landline into your home is a nondeductible personal expense. However, charges for business long-distance phone calls on that line, as well as the cost of a second line into your home used exclusively for business, are deductible business expenses."
Those two sentences name the first landline and a second line used exclusively for business. A percentage of a shared mobile plan, or of a home internet bill, is not in them. Copying the landline rule onto a percentage you picked does not turn a shared bill into the second line.
The Car
The IRS standard mileage rates table lists the 2026 business rate as 72.5 cents a mile from January 1 through June 30 and 76 cents from July 1 through December 31. The 2025 business rate on that table is 70 cents for the year. Which trips count, and which car costs are not deducted on top of the standard rate, is on the mileage deduction page.
Business Meals
The Schedule C instructions say: "In most cases, you can deduct only 50% of your business meal expenses, including meals incurred while away from home on business." That sentence is limited to most cases. The next sentence in the same paragraph raises the percentage to 80% for individuals subject to Department of Transportation hours-of-service limits, and only for business meals consumed during, or incident to, a period of duty for which those limits are in effect.
Health Insurance
The 2025 instructions for Form 7206 say you may be able to deduct the amount you paid for health insurance, and they say: "You can't subtract the self-employed health insurance deduction when figuring net earnings for your self-employment tax from the business under which the insurance plan is established, or considered to be established, as discussed earlier." The amount, if any, is reported on Schedule 1 (Form 1040), line 17.
One of four statements has to be true. The first is that you were self-employed and had a net profit for the year reported on Schedule C or Schedule F. The other three are a partner's Schedule K-1 box 14 code A, an optional method on Schedule SE, or wages from an S corporation in which you were a more-than-2% shareholder. The insurance can cover you, your spouse, and your dependents, and a child who was under age 27 at the end of 2025 even if that child was not your dependent. Leave out any month you were eligible to participate in a health plan subsidized by your employer or your spouse's employer, or by the employer of a dependent or of that child. The instructions use may for the deduction. How self-employment tax is figured is on the self-employment tax page.
Retirement Contributions
The 401(k) contribution limits page lists the limit on employee elective deferrals for traditional and safe harbor plans as "$24,500 in 2026, subject to cost-of-living adjustments". Generally, elective deferrals to all plans you participate in are added together to see whether that limit was exceeded. If the plan permits it, a participant who is age 50 or over at the end of the calendar year may also make catch-up contributions. For 2026, that additional elective deferral is $8,000 for traditional and safe harbor 401(k) plans. The same list sets a higher catch-up of $11,250 for ages 60, 61, 62, or 63.
A SEP, on the retirement plans for self-employed people page, is described as contributing as much as 25% of net earnings from self-employment, not including contributions for yourself, up to $69,000 for 2024. The dollar figures in parentheses after that are 2023 and earlier. A 2025 or 2026 dollar cap is not in that sentence. The page is marked Page Last Reviewed or Updated: 11-Aug-2026. The 25% is not 25% of the Schedule C net profit before the contribution, because the sentence excludes the contribution for yourself. No illustration here turns that sentence into a dollar contribution.
Frequently Asked Questions
Can I deduct side hustle expenses without an LLC?
A sole proprietor reports the business on Schedule C. The instructions say to include all ordinary and necessary business expenses not deducted elsewhere on that schedule. That is the rule this answer is using.
How much is the simplified home office deduction?
Publication 587 (2025) says that in most cases you multiply $5, the prescribed rate, by the area used for a qualified business use, and that area is limited to 300 square feet. 100 square feet times $5 is $500. 300 square feet times $5 is $1,500. The space has to meet the exclusive-use test: a specific area used only for the business. Using that area for personal purposes fails the test. A daycare space used regularly but not exclusively uses $5 times the hours the space was used for daycare, divided by the hours it was available for all uses. The simplified method does not apply to rental use.
Can I deduct my home phone and internet?
Publication 587 says the basic local charge for the first telephone landline into your home, including taxes, is a nondeductible personal expense. Business long-distance calls on that line, and a second line used exclusively for business, are deductible. Those sentences are about a landline. They do not set a percentage of a shared mobile plan or a home internet bill.
Does health insurance reduce self-employment tax?
The 2025 instructions for Form 7206 say you can't subtract the self-employed health insurance deduction when figuring net earnings for self-employment tax from the business under which the plan is established. The deduction is figured on Form 7206 and reported on Schedule 1, line 17. One of the statements that has to be true is a net profit on Schedule C or Schedule F. Months when you were eligible for a plan subsidized by your employer, or by a spouse's employer, are left out.
Sources
- IRS, standard mileage rates, for the 2026 business rates of 72.5 cents through June 30 and 76 cents from July 1, and the 2025 business rate of 70 cents
- Instructions for Schedule C, for ordinary and necessary expenses on line 27b, the items left off that line, fines and penalties, advertising as a Part II example, accountant and attorney fees, and the 50% business-meal rule with the 80% DOT exception
- Publication 587 (2025), Business Use of Your Home, for the $5 prescribed rate, the 300-square-foot limit, exclusive use, and the first telephone landline
- Instructions for Form 7206 (2025), for the self-employed health insurance deduction on Schedule 1, line 17, the net-profit condition, the subsidized-employer-plan months, and the statement that the deduction is not subtracted when figuring self-employment tax
- IRS, 401(k) contribution limits, for the $24,500 elective deferral in 2026
- IRS, retirement plans for self-employed people, for the SEP description of 25% of net earnings, not including contributions for yourself, up to $69,000 for 2024
The car, including the two 2026 mileage rates, is on the mileage deduction. The lines those expenses land on are on Schedule C explained.
