I was just doing some accounting to close my books (the financial year ends today in India) and I just realized something: Almost no one in the general public knows that the first few thousand bucks from your side business is tax free. How? WRITE OFFS.
Let me explain. Let’s say you have a regular job and no business income.
Guess what – you still have expenses.
You pay for:
- Petrol/diesel
- Your car depreciates
- Your computer/laptop depreciates
- Eating out and meals
- Plane tickets
- Dates
- Hotels
- etc.
You pay all of this with POST tax money. I.e. if you earned $100k and paid 30% in taxes, you pay all these expenses with the $70k you have left.
Now let’s say you start some kind of an online service based business like copywriting and get it to $5k a month in 3 years. Nothing crazy – just $5k a month after 3 years of work (much lower than expected for copywriting btw).
Guess what. Your $5k is TAX FREE.
Because if you’re smart, this is what you’ll do:
- You will incorporate your business once it starts making something reasonable (say $1k a month – this shouldn’t take much longer than 1 year)
- You will open a bank account for your business (current account / merchant account)
- You get a debit card linked to that account
- EVERY expense you make that you can reasonably claim as a business expense is run through that account
- All of these expenses are then offset against business profits i.e. your business is technically very low profit (or even loss making) so you have no taxes.
That meal you ate? Write off.
That flight you took? Write off.
Car depreciation? Write off.
Starbucks coffee you paid for to sit for a few hours and work? Write off.
Your bumble subscription? Write off. (Joke)
The hotel you stayed in? Write off.
You can just do some work in that location and then it becomes a business related expense.
So many expenses can be written off.
New phone? Write off.
New laptop? Write off.
In many countries you can even write off a portion of your rent.
This is something you do not get to do as a wage slave.
As a wage slave, you see your paycheck. It says $5000 and then it says -$1500 tax deducted at source, and you get the net $3500 to spend.
In business you get the entire $5000 and you get to manage and plan your taxes. You get write offs, deductions, and so much more.
It makes the first few years of your business entirely tax free.
So if you get your freelance copywriting or social media or web design or any other business up to $10k a month, that’s closer to about $15k in income from wage slavery (assumes 33% tax rate).
Note: Getting to $10k a month will take about 5 years for most of you. $10k a month in 5 years is something most people can manage if they put in sincere effort and time. If you are higher than average IQ, you will get there much faster.
And you get to save a ton in taxes along the way. The $3k per month year? ZERO taxes on your business because you wrote off all your expenses.
It’s a hidden profit you make when you have an internet based side income. Something you can never do as a wage slave.
– Harsh Strongman
