Potential Tax Benefits of a Small Side Gig (and Whether They’re Worth It for W2 Physicians)
While many doctors in our online communities for physicians dream of having significant side hustles that replace or surpass their clinical income, the reality is that for many physicians, a side gig will stay a side gig. They may provide some extra cash for occasional splurges, help pay off student loans, or otherwise just be fun. However, one of the main benefits of having 1099 income is having access to tax deductions and opportunities for tax planning that you may not otherwise have as a W2 earner. We’ve written extensively about tax benefits of 1099 income and real estate, but this article will cover potential benefits even if your side gig isn’t generating enough cash to take some of the larger tax deductions, so that you can decide for yourself if the lemon is worth the squeeze.
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Are there really tax benefits or deductions that are worth it if your side gig is only making a small amount of 1099 money?
There are two large points of subjectivity here - what is considered a small amount of extra income, and what is considered worth it. For the purposes of this discussion, we’ll assume that ‘small’ means less than 10% of the average full time physician income and set the amount of money we’re addressing in this article as making $25,000 or below from your side hustle.
While this amount of money likely won’t allow you to save a six figure amount on taxes, you may still find that there are significant benefits and unlocks that result simply from having some 1099 income.
Please note, as always, that we are not accountants, and you should run by the appropriateness of all of the potential options below with your accountant.
PSG resources: Accountants for physicians
1099 income opens up additional retirement plan options
There is one situation in which this may make a lot of sense, even if you aren’t able to max out the larger retirement options like fully funding a solo401k from both the employer and the employee side or funding a defined benefit plan.
The first is if you don’t have access to a retirement plan through your employer. Having 1099 income will allow you to fund, dollar for dollar earned, the employEE side of your solo401k. For 2026, this is $24,500. This is money that can grow in a tax advantaged way, which over time can be very beneficial. Don’t overlook this option.
Even if you are maxing out your retirement contributions at work, you may still benefit from being able to put away a few thousand dollars a year on the employER side of a solo401k or a sepIRA (learn more about the differences between the solo 401k and the sep IRA).
You may be able to deduct expenses that you couldn’t deduct with your W2 income
Before we list out these options, know that there are several key points here. The IRS is going to scrutinize anything where it looks like it isn’t a truly profitable income stream, so you shouldn’t create a business just for the tax deductions. But if you’re legitimately earning 1099 income by doing some occasional moonlighting or telemedicine, doing medical surveys or consulting work, etc, you may have a case to take some deductions. You’ll want to check with your accountant about what is customary and reasonable in your particular situation, and how much should be attributed to personal use versus business use.
Deductions you could consider taking with 1099 income include:
Home office deduction if the space is exclusively used for your business (learn more about this on our dedicated article about the home office deduction)
Technology used to perform the work, such as a computer, phone, camera, microphone, printer, etc. These will generally be subject to expensing and depreciation rules, so keep that in mind as well.
Professional expenses such as accounting fees, malpractice insurance, or CME and licensing fees that are related to your side gigs
Software subscriptions such as a Zoom account, cloud storage, or other software related to your business
Office or marketing related supplies
Business travel related to your side gig: mileage, lodging, transportation, meals (at 50%), parking, etc
Business portion of your phone/internet bills
You may also be looking at this list and thinking of the non-tax perks you get from having these things!
As you can see, these things could add up to a reasonable deduction/perks. Remember, of course, that you’ll also be paying taxes on your side gig income, including self-employment taxes.
You may be able to fund a Roth IRA for your children
Depending on your side gig, you may also be able to pay your children from the money, and be able to fund their Roth IRAs. That could have far reaching benefits far beyond your contributions to a 529 even.
Read our dedicated article about the benefits of funding a Roth IRA for your children, and the side gigs that may qualify.
You may qualify for a QBI deduction
Depending on your source of 1099 income (and your overall household income), you may be able to take the QBI deduction on the money you earned, allowing you to take a 20% tax deduction on the money earned. This is a nuanced discussion, especially for doctors, because side gigs related to your work as a physician generally won’t qualify, and many doctors earn too much to take the QBI deduction without a more complicated tax setup, so it’s important to talk it over with your accountant. We dive deeper here into the complexities of the QBI deduction and whether or not you may be able to take it.
PSG resources: Accountants for physicians
Are these tax deductions worth the hassle of a small side gig?
Only you can answer that question, but don’t forget that the benefits of a side gig aren’t limited to tax benefits. First of all, you’re also getting the (post tax) money that you earn, but also your side gig could scale to bigger amounts or open up other opportunities, you may benefit in other ways from the networking and experiences you get, and you may just enjoy the side gig. In these situations, the tax benefits are a nice perk, but only a piece of the puzzle.
Conclusion
While the tax deductions of a smaller side gig aren’t as slam dunk obvious as having significant 1099 income from locums or self-employment or a large business, or like some of the larger tax benefits you can take from real estate investing, they’re not negligible for most physicians. Consider it a perk, even if it’s not a driver of why you are doing these side gigs!
Tax related side gig resources for physicians
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