18: Write-Offs Every Side Hustler & Business Owner Must Know

0:00Hey, everyone, and welcome to the Rich Habits Podcast, a top 10 business podcast on Spotify. My name is Austin Hankwitz and I'm joined by my co-host Robert Croak. Normally, I would be on camera right now and both of us would be smiling. However, I had an allergic reaction to something I ate earlier this weekend and you do not want to see me. So with that being said, we're excited to introduce this episode of the Rich Habits Podcast. Now, as you know, Robert is a seasoned entrepreneur in his 50s with more than 200 million in company exits under his belt. and I'm an entrepreneur in my late 20s with a background in finance and economics.

0:36Since quitting my full-time job in corporate finance a few years ago, I've built a seven-figure media business and actively advise some of the most well-known fintech companies around the world. Now, as the show name might suggest, every episode we talk about rich habits as they relate to business, finance, and mindset. However, we try and bring you two unique perspectives along the way. One from an industry veteran, which is Robert, and the other myself, someone who's still in the process of building wealth and figuring it all out. Robert, what are we going to be talking about in today's episode?

1:10In this episode of the Rich Habits podcast, we'll be talking about our favorite benefits that come with forming your first LLC. That's right. Specifically, there are three really good write-offs that every new business owner and side hustler out there should be aware of. We also will share a few write-offs that Austin and I take advantage of personally to save ourselves thousands of dollars a year. Remember, even in the beginning of your new company or side hustle, the IRS does not require you to make profits or even have revenue as long as you're making a meaningful effort to grow your business.

1:48So keep that in mind, guys, when starting out. So make the website, get your social media handle, get printed some business cards and let's get this thing started. I need some new business cards, Robert. My old business cards aren't that great. Before we kick this episode off, I want to make this extremely clear. Robert nor myself are CPAs. We are not accountants and this is not financial, tax, or legal advice. We're two guys on the internet with a podcast. So with that being said, Robert, I heard three really good write-off strategies. Walk me through the first one. We're going to talk about your cell phone bill.

2:26There are two ways to think about this one. Figure out how much of your time is being used for your business. For example, driving Uber, finding pets on Rover, or even just making sales calls or general business calls for your new business. Then from there, determine the percentage of time you're using for your business. And then you can write off that percentage of your cell phone bill every month and just have a tremendous savings right off the gate when you form your new LLC. Now the pro tip here is to transfer your cell phone bill out of your personal name into the new LLC and with that new LLC you're able to use this strategy where the business account might be a little more expensive than the personal account but the overall write-off will far surpass the amount you spend on your cell bill every year, which is about$2 ,000 a year.

3:21So think about that is just a tremendous savings right out of the gate by forming that new LLC. I really like this one. And that leads us to the second way to think about this, which is actually purchasing a phone and using it exclusively for work. So for example, have you ever seen an Uber driver with more than one phone? This is likely why, right? They likely went out, purchased a phone just to drive Uber or Lyft or deliver. That's the thing, right? If you use this phone exclusively for work, you're able to deduct the entire monthly bill as an operating expense, which will save you hundreds of dollars a year on your taxes.

3:59And one thing to keep in mind, listeners, is that the average sell bill is$166 a year now. So that write-off is key right out of the gate to save you a couple thousand dollars a year. Okay, so the first one was the phone bill, but we're doing more than just using our phones. What else are we doing, Robert? What's our second write-off strategy here? Yeah, this is a really good one that's talked about a lot, but I don't think most people execute on it. And I don't know why, because it's free money. The home office expense. This is a fun one. With this write-off, you're able to deduct 10 to 15 % of your monthly rent or mortgage as an operating expense, assuming that you use a portion of your rental or home for work.

4:43So this is a really good one. What's really important about this is to figure out what that percentage is, right? So Robert said 10 to 15%, and that's likely where you're gonna land. But to simply find out what that percentage is, you wanna measure the size of your area. So for me, I actually have an at-home office. I've just converted a bedroom of mine into an office. So in my example, let's say it's 250 square feet, round numbers. Take that 250 square foot number, the size of your office, and then divide that into the total size of your home. For me, it's about 1 ,500 square feet. So 250 square feet divided into 1 ,500 square feet is 16.6 % of my total home, which means you can deduct 16.6 % of your monthly rent or mortgage as an operating expense.

5:33This is something I do personally that That saves me thousands a year on taxes. Yeah, this is just so important because it's talked about a lot, but so many people miss this expense and it's such a good one overall. And the pro tip here is beyond deducting the entirety of your physical office supplies like notebooks, calendars, sticky notes. You can also deduct 16.6 % of your monthly utility bills, including the internet. And again, this 16.6 figure is just in my specific scenario. You're going to land as well around that 10 to 15 % range. I certainly did. So it's a really great write off. And again, it's something that I use personally, and I'm really, really excited to share with you all.

6:15Absolutely. We love these strategies because the IRS is there to help us give us the strategies and give us the outline of how to best build our businesses in the most profitable ways we can. So keep that in mind. So let's get on to the third point, Austin, your vehicle. So many people think that they don't get write-offs from their vehicle. Man, their vehicle is so expensive. What am I going to do? Take us away on this one because there's some really good strategies here of how to get write-offs on your vehicle for that new business and LLC. Yeah. So there are two ways to approach writing off your vehicle.

6:51The first one is the standard mileage rate. Now, the standard mileage rate means that every mile you drive your vehicle for business, think Uber, Rover, meeting clients, or doing any work of any kind, you're allowed to deduct 65.5 cents per mile. So for some math around this, let's say a tank of gas gets you 400 miles of range. That 400 miles of range, assuming all of that mileage was dedicated to actual business use, is$262 in deductions. Now, it's pretty obvious to see how this can turn into thousands of dollars a year in tax savings if done correctly. That was a great takeaway of how to explain that strategy.

7:33Now, a second way to do this is the actual vehicle expense method. I know that's a mouthful, but it's very important. This means you're still counting your miles, but you're also tallying up the cost of gas, maintenance, tires, insurance, and everything that it takes to run your car for business. keeping in mind how much of your car is used for business, you write off that portion of these expenses. However, for a lot of people, tracking the miles and deducting the 65 and a half cents per mile just saves them more money. And at the end of the day, Robert, we're just trying to save people some money.

8:08That's all I want to do is I want to save money on my taxes. I want to make more money for my business and I want to get more and more people excited about starting Rich Habits. It gets me so pumped. This episode of the Rich Habits podcast is brought to you by Nios Investments. Nios offers ETFs that aim to offer monthly income while providing core portfolio exposure across equities, fixed income, and cash alternatives like T-bills. Their ETFs may be particularly interesting for folks looking to generate passive income inside of their investment portfolio. They even offer an ETF that provides exposure to the S &P 500 index, and you know we like the S &P, while aiming to offer high monthly income beyond what investors would receive from plain exposure to the index.

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9:32NEOS ETFs are distributed by Foresight Fund Services, LLC. An investment in NEOS ETFs involves risk, including possible loss of principal. The equity securities purchased by the funds may involve large price swings and potential for loss. A fund's income may decline when yields fall. Fixed income securities will decline in value because of an increase in interest rates. Okay, everyone. Now, before we jump into Q &A, I'm also guilty of this. I skipped through the ads. I'm just like, I don't want to listen to this. It's obviously a script. You're right. That had to go through some compliance. It's very scripted.

10:07We get that. But with that being said, I love the SPYI ETF. It makes up a healthy chunk of my personal portfolio. I get a great 12 % annual distribution yield from it. It's very tax efficient. It is an incredible ETF. That's SPYI. I'm not telling you to buy it. Just go do some research. Go check it out. Go to neosfunds.com. And everyone listening, just remember, we flush out everything we talk about from years, if not decades of experience, but also being very careful to share the things that we love, what we're investing in, and what we think is great for the future for all of us to build wealth.

10:43100%. Speaking of building wealth, we have a great question from Jay E. Jay asks, would love to hear you guys discuss managing student loans as a hurdle to building wealth. As a new physician who financed my entire medical education through Uncle Sam, I'm overwhelmed by being on the hook for a quarter million dollars now right off the bat. Would love to hear your guys' perspective on this, I'm sure there's a lot of other people who are similarly burned by this scenario. Great question by J.E., and I think you should take this away. I've got a couple ideas of my own, but I know this is right up your alley.

11:17So we've all heard the story of the plumber who never went to college and has a higher net worth than a doctor until that doctor turns 50, and the reason that is is because of the doctor's student loans, right? So let's say that J.E. over here is taking home$180 ,000 a year after taxes. And let's now also assume that you are comfortably living off of$80 ,000 a year during med school and your residency. That means you now have this extra$100 ,000 in income that you're trying to figure out what to do with. Now, here's what I would do. I would go buy that Rolex, go buy that whatever five or even$10 ,000 gift you've always wanted to get yourself because you're finally a doctor now.

11:56You deserve it. Go get it. Get it at your system. What you should really do after that is consider taking that additional$100 ,000 a year in discretionary income and dumping it on these student loans, right? That's two and a half years of living off of$80 ,000 a year, which I feel like isn't that hard. $100 ,000 a year for two and a half years gets rid of your student loan debt. And then by the age of, I don't know, 34, 35, you are now completely free to build wealth throughout the rest of your life without these two, three,$4 ,000 a month payments for the next 22 to 25 years, depending on your lender.

12:29But for those of you that are not just quite ready to dump all of that hard earned income into these student loans and you wanna drag it out a little bit longer, there are some other hacks to look at. You can do the biweekly payment method or you can do principal only payment methods to be able to knock it down faster, save a lot on your interest and really chop it down, but not as fast as Austin's strategy. So there are some other ways here to knock this down and make it manageable. But the number one thing is you have to pay Uncle Sam and you can't miss payments and you can't default on this because there's just too many bad things that'll happen to you.

13:09So our next question comes from Wiley K. Wiley says, my brother has$10 ,000 in a Roth IRA that he set up through his quote unquote financial advisor, but he has no idea what it's actually invested into. What should I tell him for advice? Robert, as someone who talks to a bunch of people who are trying to figure out their money, if it's on TikTok or with your family's firm, I think this is a question for you. And the first thing, Wiley K, I would tell your brother to do is get on the phone with that financial advisor, find out exactly what the holdings are. And then if you want, share the list with us and we'll take a look at it for you.

13:46But you cannot let your brother stay in this position for one more day. It's ridiculous, even with$10 ,000, that this advisor is not making sure to give your brother as much information as possible so he knows what his money is doing and where it's at. And I think on top of that too, I'm all for financial advisors and that's a really good thing to have. But I'm also for people being cognizant that they might not need a financial advisor yet. I think financial advisors are super, super useful once you become wealthy, right? Hundreds of thousands of dollars. You need to figure out how it all comes together at the end of the day.

14:25But with 10 grand, I mean, when I had$10 ,000, I just parked it in a robo advisor. It was called Betterment back in I think like 2017 or something, 2018. I was still in college and Betterment did it all for me. I paid 25 basis points a year in a management fee and it was a no brainer. Another thing you can do is tell your brother to ask their financial advisor to just transfer that money out of the account and straight, the key here is straight, not to your bank account because that is a taxable event. We wanted to go straight to the other new brokerage account that your brother has set up, if that's through Betterment or Wealthfront or Fidelity or Vanguard or any other Roth IRA custodian.

15:02Yeah, I'd love to see Wiley K's brother get it out of there, get it even just through the Roth in the new account into VOO and QQQ, and they'd be in a much better position year over year than where they're at right now. But the first thing is to find out what the holdings are and what can be done next. Now, our last question comes from David G. David says, I would like to set my son up for future financial success. He's recently turned 16 and started his first job. I made it a rule that 50 % of each check goes to savings. He has no bills except for gas. What can I do to make that 50 % in his savings make more money for him?

15:43Very, very simple. Custodial Roth IRA, right? We just talked a little bit about Roth IRAs beforehand with Wiley Kay and their brother, but essentially what a Roth IRA is, it's a Roth individual retirement account. Every dollar that you put into this account and invest towards the S &P 500 or really anything you want to invest toward, but retirement is tax-free come retirement. You're not paying taxes on those gains. You're not paying taxes on that compound interest that we talk about all the time here. You're only paying taxes upfront. That's the first thing I would do is think about opening a custodial Roth IRA on his behalf.

16:20And you can use Fidelity or Vanguard. There's also M1 Finance. I like them a lot. And then finally, once the money's in there, All you got to know is ticker VOO. Just type into the search bar when you're looking for a stock VOO and put money into that. That's the S &P 500. You'll be, but this is a really, really good way to set him up financial success for the future. You know, both Austin and I always believe and agree that everyone should have their Roth IRA set up as soon as possible. and at the very least have VOOQQQ in their portfolio starting out because it's just such a great strategy to get your wealth building started in the right track.

17:02But a couple other things you could look at as well, David G, is look at high yield savings accounts. Right now, we really like Wealthfront because they're paying over 4.5%. So this is a good strategy and very liquid. And I think everyone should have some of their like emergency fund in there because we don't want to see money sitting in a traditional savings account making nothing. So I think this is another good strategy that you could deploy for your son right away. And on top of that, if we're not thinking about investing and we're just thinking about parking money and savings, another idea are treasury bills through public.com.

17:40Treasury bills are essentially a loan to the government. They give you the money back with interest. and the gains you make with your T-bills are not subject to local or state taxes where high yield savings accounts, the gains you make are. So if you live in a state like New York or California and you do have to pay local and state taxes, maybe T-bills might be a better way to go about it. That is it. That is the 18th episode of the Rich Habits Podcast. Robert, I learned a lot. I learned about tax write-offs. I learned about the home office expense, my vehicle. I also learned a little bit about student loan repayments, this cool biweekly payment method you mentioned.

18:18I didn't know about that until now. That's really cool. Here's the deal. We now have 16 ,000 people that tune in every Monday morning to listen to the Rich Habits podcast. And I just could not be more excited about it. I remember four months ago, we started this podcast. We had maybe 200 weekly listeners and they all came from us doing live streams on TikTok together. and now we have nearly 20 ,000 people who are coming on a weekly basis to listen to what we have to share. If you provide value and great information, the people will come to you and I am so overwhelmed with joy and appreciation for everyone that has followed along on this journey and I'm so excited to see what happens in the coming months.

19:02When you shared with me the other day that we broke the top 200 on Spotify out of over 5 million podcasts, I bawled my eyes out. So it's been just an incredible journey. And I'm so proud of you and all that we've done in this podcast and for all of you that support us on a weekly basis. Now for the people who are actually listening to the very end of the podcast, I have 10 copies of Michaela Aloka's new book called Own Your Money. I think Robert has it as well. It's a really, really great book. And I'll give them away to you. Shoot me a DM at Austin Hankwitz, It's not at Rich Habits Podcast because this is only for the people who listen to the end.

19:44Shoot me a DM at Austin Hankwitz on Instagram and I'll mail you one of these copies of her book. It's an awesome way to think about owning your money, getting started with your money, making the budgets, investing, all the fun stuff we talk about here. Major shout out to Michaela in her awesome book. With that being said, if you have any questions for the next episode of the Rich Habits Podcast, shoot us a DM at Rich Habits Podcast on Instagram and we will definitely check it out and get back to you. Thank you, everyone. We love it and appreciate all your support. Have a great night.