Parents running side hustles may deduct laptop costs if used for business. The IRS allows deductions for the business-use portion, with options like Section 179 for full cost write-offs or depreciation over five years. Accurate records and proof of business use are crucial for compliance.
Navigating Tax Deductions for Laptops Used in Side Hustles
For parents balancing family life and a side hustle, every dollar counts, especially when it comes to tax savings. If you’re a stay-at-home parent or juggling a side gig alongside a primary job, you may be wondering whether the cost of a laptop used for your side hustle qualifies as a tax-deductible expense. The good news is that, under certain conditions, the IRS allows deductions for computers used in business activities, which can apply to side hustles. Here’s a detailed guide to help you understand how to claim these deductions, the rules involved, and strategies to maximize your tax benefits.
Understanding Business Use Deductions
The IRS permits deductions for equipment like laptops if they are used for business purposes, which includes side hustles operated as sole proprietorships or freelance work. According to IRS guidelines, a laptop qualifies as a deductible business expense if it is “ordinary and necessary” for your trade or business. For side hustles—such as freelance writing, online tutoring, or e-commerce—this often applies, as laptops are essential tools for tasks like managing client communications, tracking finances, or running online platforms.
However, the key restriction is that only the business-use portion of the laptop’s cost is deductible. If you use the laptop for both personal and business purposes, you must allocate the deduction based on the percentage of time it’s used for your side hustle. For example, if you purchased a $1,500 laptop and use it 60% for your side hustle and 40% for personal activities (like streaming or helping kids with homework), you can deduct $900 (60% of the cost).
Section 179 Deduction: A Faster Write-Off
One of the most advantageous ways to deduct laptop costs is through the Section 179 deduction, which allows you to write off the entire business-use portion of the laptop’s cost in the year of purchase, rather than depreciating it over time. To qualify, the laptop must be used more than 50% for business purposes, and the total deduction cannot exceed your net taxable business income for the year. For 2024, the Section 179 limit is $1,160,000 for qualified business equipment, including computers, making it a powerful tool for side hustle operators.
For instance, if your side hustle generates $10,000 in net income and you spent $2,000 on a laptop used 80% for business, you could deduct $1,600 in one year under Section 179, provided you have sufficient income to offset the deduction. If your side hustle income is lower, you may need to carry forward any unused deduction to future years.
Depreciation as an Alternative
If you use the laptop less than 50% for business or prefer not to use Section 179, you can deduct its cost through depreciation. Computers are typically depreciated over a five-year period using IRS depreciation schedules. For a $1,500 laptop used 40% for business, you could deduct $600 (40% of the cost) spread over five years, equating to $120 per year. The IRS also offers a “de minimis safe harbor election” for equipment costing less than $2,500, allowing you to deduct the business-use portion in the first year without depreciation, simplifying the process for smaller purchases.
Additional Deductible Expenses
Beyond the laptop itself, related expenses can also be deducted if they are tied to your side hustle. These include:
Internet costs: If you rely on Wi-Fi for your side hustle, you can deduct a portion of your internet bill based on business use. For example, if 30% of your internet usage is for business, you can deduct 30% of the bill.
Software and peripherals: Business-related software (e.g., QuickBooks for bookkeeping or Adobe for graphic design) and peripherals like monitors, keyboards, or external drives are deductible based on their business-use percentage.
Repairs and maintenance: Costs for fixing your laptop or purchasing antivirus software can also qualify, provided they are necessary for your side hustle.
Recordkeeping and Compliance
The IRS requires meticulous recordkeeping to substantiate deductions. You’ll need to maintain receipts, invoices, and documentation showing the laptop’s purchase date, cost, and business use percentage. A log or diary tracking the time spent using the laptop for business versus personal activities can strengthen your case during an audit. Apps like Keeper or FlyFin can automate expense tracking, scanning purchases to identify deductible items and ensuring compliance with IRS rules.
For parents running side hustles from home, you may also qualify for a home office deduction, which can include a portion of rent, utilities, or home insurance if your workspace is exclusively used for business. This can complement laptop deductions, further reducing your taxable income.
Limitations and Considerations
There are important caveats to keep in mind. If you’re a W-2 employee in addition to your side hustle, you cannot deduct laptop costs for your employee job, as unreimbursed employee expenses are no longer deductible under the Tax Cuts and Jobs Act (TCJA) of 2018. Additionally, you cannot claim a Section 179 deduction for a laptop previously used for personal purposes and later converted to business use. The laptop must be purchased specifically for your side hustle to qualify.
For parents whose side hustle is not yet profitable, deductions may be limited. The IRS requires a profit motive for your side hustle to qualify as a business (typically profitable in three out of five years). If classified as a hobby, deductions are restricted to the income generated, and losses cannot be claimed. Consulting a tax professional can help clarify your side hustle’s status and optimize deductions.
Practical Tips for Parents
To maximize your deductions:
Estimate business use conservatively: Overestimating business use can trigger IRS scrutiny. Use time-tracking apps or calendar records to justify your percentage.
Consider timing: Purchasing a laptop late in the tax year can still allow a full Section 179 deduction if placed in service (used for business) before year-end.
Leverage tax software: Tools like TurboTax Self-Employed or Keeper can guide you through deductions, ensuring you capture all eligible expenses while maintaining compliance.
Consult a professional: If your side hustle involves complex finances or significant equipment purchases, a CPA can help navigate IRS rules and maximize savings.
Special Note for Education-Related Side Hustles
If your side hustle involves tutoring or teaching, and you’re also using the laptop for educational purposes, you may wonder if education tax credits apply. Unfortunately, the American Opportunity Tax Credit (AOTC) and Lifetime Learning Credit (LLC) are generally not available for side hustle expenses unless the laptop is a specific requirement for enrollment at an educational institution. For most side hustles, business deductions are the primary avenue for tax savings.
Disclaimer: This article is for informational purposes only and does not constitute tax, legal, or financial advice. Consult a qualified tax professional to ensure compliance with IRS regulations and to tailor deductions to your specific situation.
