Bills, bills, bills, you can’t live with them and you obviously can’t live without them (trust me I tried). A few years ago, I used to look at my money expenses and get so frustrated at how much I was spending on things that I “needed”. Think I’m kidding? Well check out the list for yourself:
Car Note $400
Car Insurance $200 (Don’t buy a Dodge Challenger under age 25!)
Phone Bill $125
Internet $100 (Had to have high speed for COD)
Dining Out $250
The sad part is these weren’t all of my expenses! But these are all expenses that I can know write-off as a business owner. Yep, that’s right! These $2,075 per month worth of expenses that I would pay whether I had or business or not, I now get a direct tax deduction for as a business owner. And by the end of this blog, you will know how to convert some of your personal expenses into business expenses!
HOW IS THIS POSSIBLE?
Well, that first thing you need to know is that the IRS Tax Code is written in favor of Business Owners and Investors…NOT EMPLOYEES. You see, the tax structure for business owners/investors vs. employees is very different, almost opposite even. As an employee, your income flow goes like this; 1. Compensation 2. Taxes 3. Spend whatever’s left. But as a business owner, your income flow goes like this; 1. Compensation 2. Spending/Reinvesting in Business 3. Pay taxes on whatever is left. So while employees are watching the IRS devour the main course so that can receive the leftovers, business owners are consuming the main course and paying taxes on the leftovers (sorry for the food analogy, I’m starving as I write this post). So how do you go from a bottom feeder to the head of the table? Great question.
THE SID GIG
It’s time for you to get a side hustle! In the 21st Century, there are endless opportunities to start a side hustle. You can become a dog walker for your neighbors, drive uber or the weekends, host yoga classes, even start a virtual study group. In fact, there is even an app created to help you find a side hustle. So why do you need a side gig? A side gig will allow you to write-off personal expenses even while you are working full time. IRS rules require you to recognize all income earned from activities. With that being said, you also need to recognize all expenses that you incurred to earn this revenue and these expenses often include personal items that you would pay regardless! Is your mind blown yet?! Well wait, look at an example:
THE PART-TIME UBER DRIVER
Tommy works full-time but decided he wants to make money driving uber on the weekends. Tommy works for a year and collects $5,000 in side income. Great job Tommy! Now let’s see what write-offs are available for Tommy from his side gig:
Phone Bill (needs service to run app) = $1,200
Car washes (clean car means 5 star rides) = $400
Interest on car note (deductible) = $1,000
Car insurance (can’t drive without this) = $1,200
Meals while driving (50% deductible) = $300
Oil Changes and Repairs = $1,000
Depreciation deduction = $4,000
Total Write-offs = $9,100 Net Loss = -$4,100
As you can see Tommy was able to deduct expenses that were required to pay regardless (car note, insurance, meals, oil changes, etc). Moreover, Tommy has a net loss of $4,100 that he can subtract against his work income saving him about $1,230 in income taxes. Therefore, Tommy earned an extra $5,000 and saved taxes of $1,230, netting him $6,230! BOOOM! *Drops mic.
As we start 2019, you now have the tools and knowledge to implement this tax-saving strategy in your life. Brainstorm some hobbies that you can earn side income from (and that you enjoy) and determine which expenses can be written-off due to this “side gig”. You will earn more money and save on taxes, making your 2019 a financial breakthrough!