Running a side hustle often means using things you already own. Maybe it is your phone, your car, a streaming subscription, or even a ticket to an event you plan to post about online.
Since you are using it for your business, you might assume you can deduct the full cost.
That is where people get caught.
A recent Tax Court case shows how side hustle tax deductions can turn into an IRS problem when business and personal spending get mixed together.
The taxpayer had a regular full-time job while also driving clients, reselling tickets, and building a social media following. He claimed several expenses as business or marketing costs, but the court did not agree with all of them.
Some deductions were allowed because he had enough information to support them. Others were denied because the records were weak or the expenses were mainly personal.
Calling something a business expense is not enough. You need to show why it belongs on your return.
- How the Case Ended Up in Tax Court
- What Did the Taxpayer Try to Deduct?
- Posting It Online Does Not Make It Marketing
- What the Tax Court Allowed
- What the Tax Court Rejected
- Why Business Expense Records Matter
- Personal and Business Expenses
- When a Deduction Becomes an IRS Problem
- What If These Deductions Are Already Filed?
- What to Do Next
- Frequently Asked Questions
How Side Hustle Tax Deductions Ended Up in Tax Court
The case was Suleiman Sami v. Commissioner , T.C. Memo. 2026-69, filed on August 18, 2026. The consolidated cases were Docket Nos. 8834-23 and 16512-23.
Sami worked full-time as an information technology manager for JetBlue. Outside that job, he operated an LLC with several activities.
He provided private transportation services, resold event tickets, and worked on building a social media following.
He reported the activities on Schedule C . Sole proprietors generally use this form to report income or loss from a business.
For 2019, 2020, and 2021, the IRS challenged several deductions.
It originally determined tax deficiencies of $63,219, $27,421, and $39,910.
It also determined accuracy-related penalties of $12,644, $5,484, and $7,982.
Those were the IRS's original figures. Because the court later allowed some disputed items, the final amounts had to be recalculated under Rule 155.
The Tax Court allowed some deductions and rejected others. The final tax amounts therefore had to be recalculated after the decision.
But he lost enough of the disputed issues for the court to conclude that he remained liable for accuracy-related penalties.
What Did the Taxpayer Try to Deduct?
Many of Sami's expenses will sound familiar to people with side businesses.
They included:
- Vehicle costs
- Tolls
- Credit-card processing fees
- Phone service
- Phone equipment
- Television and streaming subscriptions
- Marketing expenses
- Event tickets
- Payments to relatives who occasionally drove for him
The more unusual expenses involved access to celebrity events and experiences.
According to the court, Sami paid for Grammy and Emmy tickets, celebrity meet-and-greets, a personalized video, and opportunities to interact with well-known athletes.
He photographed or recorded some of these experiences and posted the content on social media.
Sami originally reported many of the event-related payments as charitable contributions.
During the court case, he argued that they were marketing expenses used to develop his social media business.
That argument did not convince the court.
Posting It Online Does Not Automatically Make It Marketing
The issue was not whether Sami posted the experiences online. He did.
The court also recognized that some posts may have increased his views, followers, or public attention.
The real question was whether the expenses were primarily undertaken for business rather than personal reasons.
The court concluded that these particular celebrity experiences were mainly personal.
They were desirable experiences that could provide enjoyment, personal stories, and status. Posting about them later did not automatically turn them into deductible marketing expenses.
The court did not rule that influencers can never deduct event-related costs. It ruled that Sami failed to show that these particular expenses were primarily for business.
This lesson reaches beyond celebrity events.
A food creator cannot assume every restaurant meal is deductible because a picture appeared on Instagram.
A travel creator cannot automatically deduct every vacation because videos were recorded.
A fitness creator cannot treat every item of clothing as a business expense merely because it appeared in a post.
Similar expenses might qualify in other situations. Tax treatment depends on the facts, the primary purpose, and the available records.
The IRS provides additional business expense resources for taxpayers trying to determine what may qualify.
What the Tax Court Allowed
The court allowed several expenses when Sami had enough evidence and a clear business connection.
Vehicle and Transportation Expenses
Sami kept records showing dates, fares, tolls, starting locations, and ending locations for many driving trips.
He did not record the exact mileage for every trip, but he used the available information and mapping tools to reconstruct it.
The court allowed 80% of certain claimed vehicle expenses, tolls, and parking costs.
Sami's result was unusual.
Because he used the vehicles directly to transport people for compensation, a specific statutory exception meant the normal strict vehicle-substantiation rule did not apply in the same way.
That allowed the court to estimate part of the expense.
Most side-hustle owners should not assume they can reconstruct mileage later and automatically receive an 80% deduction. The percentage resulted from the specific evidence and facts of this case.
The safer approach is to maintain a timely mileage log showing the date, destination, distance, and business purpose of each trip.
Credit-Card Processing Fees
Sami proved that the processing fees were connected to customer payments for transportation and ticket sales.
The court allowed them as ordinary and necessary business expenses.
This connection was easy to follow. Customers paid for services, and the card companies charged fees to process those payments.
Part of the Phone Expenses
The court agreed that Sami needed at least one phone for his transportation activity.
Customers used it to schedule pickups, and he used it for navigation.
However, Sami maintained four phones and did not keep records showing the business and personal use of each one.
The court allowed 25% of the reported phone-service expenses but denied the claimed phone-equipment expenses.
The 25% allowance was an estimate based on this case. It is not a standard percentage other taxpayers can automatically use.
Qualified Business Income Deduction
The court held that Sami's Schedule C income from his transportation and event-ticket-sale businesses was qualified business income.
The social media activity was not the basis for that holding because it produced no gross receipts during the years involved.
This mixed outcome is important.
The court did not dismiss his entire side business. It reviewed the disputed items separately and considered the evidence supporting each one.
What the Tax Court Rejected
Other expenses failed because Sami could not establish their business purpose, amount, or connection to an operating business.
Marketing and Event Expenses
Sami claimed large amounts for marketing events and payments originally reported as charitable contributions.
The court found that the event experiences were primarily personal.
It was not enough that some photographs or videos may have increased his online attention.
Sami also had no social media advertising revenue during 2019 through 2021.
The court noted that genuine pre-opening costs connected to a social media business might instead have been startup expenditures governed by Section 195.
The court did not complete that analysis because Sami had not established the necessary facts and legal argument.
It did not definitively rule that all his event expenses were startup costs.
Streaming and Television Subscriptions
Sami described television and streaming expenses as market research.
The subscriptions included cable television, Netflix, Hulu, WWE, and Apple services.
The court was not convinced that the subscriptions were directly related to his businesses.
Watching television and online videos is also a common personal activity. General claims about following trends were not enough to prove a business purpose.
That does not mean a streaming subscription can never be deductible.
It means that calling it "research" may not be enough when it is also used for personal entertainment.
Payments to Relatives
Sami said two cousins sometimes helped him drive customers.
The court appeared to accept that he sometimes paid them, but he did not provide documents showing the amounts.
His testimony was also not specific enough for the court to make a reasonable estimate.
The deductions failed because of missing proof, not simply because the workers were relatives.
Payments to family members may be deductible when they perform real services and the payments are properly documented.
Records may include their duties, dates worked, payment amounts, and required tax forms.
Ticket Costs
For 2021, Sami claimed $730 as the cost of tickets purchased for resale.
His bank statements showed purchases from SeatGeek and Ticketmaster, but he did not prove that those particular tickets were actually resold.
The court therefore denied the claimed cost of goods sold.
This is another example of why proof of payment may not be enough. The business connection also needs support.
General Marketing Expenses
Sami pointed to bank and credit-card transactions as support for other marketing costs.
Many entries had unclear merchant descriptions and did not explain what he purchased.
The statements proved that money changed hands.
They did not clearly establish what was purchased or why it belonged to the business.
The court denied those expenses.
Why Business Expense Records Matter
The IRS recordkeeping requirements explain that taxpayers must maintain records supporting the income and deductions reported on their returns.
A bank statement can prove that you paid someone.
A credit-card statement can show the date and amount.
But those records may not explain what you bought or why it was a business expense.
Useful records may include:
- Receipts and invoices
- Vendor information
- Descriptions of what was purchased
- Notes explaining the business purpose
- Mileage logs
- Contracts and payment records
- Calendars or appointment records
- Copies of related advertisements or campaigns
- Records showing how shared costs were divided
The IRS does not require every small business to use one particular bookkeeping program.
Your system does need to show income and expenses clearly.
Be Careful When Personal and Business Expenses Share an Account
Sami used business and personal accounts for different purchases.
Some accounts included clearly personal spending.
That made it harder to identify which transactions belonged to the business.
Using a separate business account or credit card can make recordkeeping easier.
It does not automatically make every purchase deductible.
The expense still needs a legitimate business purpose.
If one phone is used for clients and family calls, the entire bill may not be deductible.
If a vehicle is used for customer trips and personal errands, the business use needs to be separated and supported.
Creating an LLC may change how a business is organized, but it does not eliminate the normal tax rules requiring a legitimate business purpose and adequate records.
When a Questionable Deduction Becomes an IRS Problem
A questionable deduction does not automatically result in an audit.
If the IRS examines the return, however, it may request records supporting the amount and business purpose.
If the records are not enough, the IRS may disallow the deduction.
That can increase taxable income and create an additional tax bill. Interest may also apply.
An accuracy-related penalty may apply in certain cases, including some substantial understatements of income tax.
The penalty is commonly 20% of the portion of the underpayment to which it applies. The exact result depends on the circumstances and applicable law.
Sami argued that he acted with reasonable cause and in good faith.
The court rejected that defense.
It emphasized that he had bachelor's and master's degrees in accounting, kept no books, and often could not show what he purchased or why it served a business purpose.
The decision involved civil tax deficiencies and penalties.
It was not a criminal tax-fraud case.
Taxpayers dealing with penalties can also review IRSProb's overview of IRS penalty relief .
What If These Deductions Are Already on Your Return?
Do not panic and do not immediately amend the return based only on one court case.
Start by gathering the records you still have.
Look for receipts, emails, calendars, mileage information, invoices, contracts, and copies of content or campaigns connected to the expenses.
Then review each expense honestly:
- What did you purchase?
- Who used it?
- Why did you buy it?
- Was the main purpose business or personal?
- Can you support the amount?
- Did you remove the personal portion?
- Was the business already operating?
An amended return may be appropriate in some situations.
In others, the original position may be supportable with better documentation.
A qualified professional should review the complete return before recommending a change.
If the IRS has already contacted you, pay attention to the response deadline.
The notice may identify the expenses and documents the examiner wants to review.
IRSProb provides IRS audit assistance for taxpayers who need help reviewing notices, organizing records, communicating with the IRS, or responding to proposed adjustments.
Is the IRS questioning your side-hustle deductions?
Start by reviewing what was claimed, gathering the records behind each expense, and separating personal spending from legitimate business costs.
Review IRS Audit HelpWhat to Do Next
The lesson from Sami is not that side-hustle owners should be afraid to claim legitimate expenses.
The lesson is that each deduction needs a real foundation.
Keep personal and business transactions separate when practical.
Record the business purpose when the expense happens.
Save documents showing what you purchased.
If an expense serves both purposes, use a reasonable method to divide it and keep an explanation.
If you have received an audit notice or believe unsupported deductions may be causing a problem, do not guess your way through it.
Review the facts and understand your options before responding.
IRSProb helps taxpayers address audits, disputed deductions, penalties, and other IRS problems. Visit IRSProb to discuss your situation.
Frequently Asked Questions
Can I deduct something because I posted it on social media?
Not automatically. Posting a purchase may help explain its connection to your work, but the primary purpose and supporting records still matter.
Is a credit-card statement enough to prove a business expense?
It may prove that a payment occurred, but it may not show what was purchased or why it was business-related.
Can I deduct my entire phone bill for my side hustle?
That depends on how you use the phone. If it serves both business and personal purposes, only the properly supported business portion may generally be deductible.
Are streaming subscriptions deductible for content creators?
They may be deductible in limited situations when they have a clear business connection. Calling a subscription "research" does not automatically make it deductible.
Can I deduct payments made to a family member?
Potentially, if the person performed real services and the amount was reasonable and properly documented. Other employment and reporting requirements may apply.
What happens if the IRS disallows my Schedule C deductions?
Your taxable income may increase, which can lead to additional tax, interest, and possible penalties. Your response options depend on the stage of the examination.
Should I amend a return with questionable business expenses?
Not automatically. Review the expenses, records, tax rules, and complete return with a qualified tax professional first.
