What is a "Write Off"?
In honor of tax day, an ode to Seinfeld, and must-read for all the side hustlers, solo entrepreneurs, and yoga teachers out there...
TL;DR
If you have a side hustle, take the quick and easy step of forming an LLC. Not only will it help protect you individually if your business is ever sued, but you can take advantage of the tax benefits of owning a business.
Say you’re a yoga teacher. You can expense things like: the miles you drive to the studio; a room or office you use to teach online courses; and continuing education like retreats, workshops, and other classes.
If you make $1K a month, and spend $100 on things like the above, you are only taxed on $900 worth of income.
A “write off” is the colloquial term for this kind of business expense. If you have a business that you need to purchase things for, you don’t pay taxes on those expenses.
An LLC isn’t always the right choice, and there are other types of business structures (e.g. C-Corp, S-Corp, B-Corps), but for many solo entrepreneurs, LLCs can be an easy first step.
I never expected to teach yoga. I took teacher training because I loved the practice. I fact, I fell into teaching during a snow storm. I was one of the few teachers that lived within walking distance from my studio. I loved teaching, and the extra income and free yoga studio membership were nice perks. Otherwise, I didn’t think much of it. Oh I wish that I knew all I know now…
If you have a side hustle, please keep reading. Also, if you too are a yoga teacher.
What is a Write Off?
An LLC, or Limited Liability Corporation, is a pretty simple business structure.
Think of a business like a yard with a big fence around it. The LLC is the fence and the yard is your business. The fence helps protect the income you make from your business.
An example will help. When I taught yoga, I also had a full time job.
Creating an LLC for teaching yoga would have put a fence around the money I made at the studio. If I was ever sued by a student, I could only be sued for the money I made from teaching yoga, not for my wages from my full time job. This example is particularly relevant for any real estate or AirBnB income as it’s a more litigious environment…gratefully less so for yoga!
If multiple people own the business, an LLC also helps keep track of the ownership of each person.
But mainly, creating an LLC for your business makes it easy to reduce your annual taxes. Otherwise known as a “write off.”
It’s relatively simple. For my yoga business, I could include expenses like:
The gas mileage driving to and from a yoga studio
A portion of your rent or mortgage for any home office that you use for teaching or recording
Yoga teaching trainings and continuing education
Travel expenses like airline tickets or travel meals for any trainings or retreats
Software to run your business online
Coffee or lunch for meetings with any clients (50% write off) or potential clients (100% write off).
Say I make $10K teaching yoga each year, and I spend $2K on related expenses like the ones listed above. When I pay taxes, I will only pay taxes on $8K worth of income ($10K - $2K).
A few tips to keep in mind.
Keep good track of your receipts! I use software to manage my expenses/ I also have a separate business bank account (see below for my entire business stack). You don’t need to do that, but I find it helpful.
If your yoga business makes $2K in a year, but you have $3K in expenses, you don’t get to subtract the $1K from other income, like a full time job (remember that fence we talked about!) There are some loopholes for this, like for real estate professionals, but not in general.
You can’t double dip expenses. If a client pays for a work trip, you don’t also get to deduct those expenses. And if someone else will pay for something, let them! Just don’t include this as a business expense. Don’t let the tail (taxes) wag the dog (the business) as my dad likes to say.
There’s a few different structures for businesses (C-Corps, S-Corps, B-Corps). LLCs are often the easiest way for solo entrepreneurs to start.
If you have more than $600 for your side hustle, you have to pay taxes on that income.
There’s also some really cool retirement plan benefits for solo entrepreneurs, like the solo 401K, which allows you to save up to $69K in retirement tax free.
Why Write Offs (and Small Businesses) Matter:
Small businesses help grow the US economy.
In general, the US Government wants to make it easy to build and grow small businesses. Small businesses generate economic growth, and economic growth means more tax revenue.
Good tax policy creates the right incentive.
The government wants to incentive business investment. “Write offs” incentivize business to spend money, which grows the economy, which ultimately increases government revenue in the long run.
More cynically, businesses have a strong lobbying effort in Washington, DC to keep these incentives. An Etsy creator is a better spokesperson than Jeff Bezos…
The concept of a “write off” is what enables Amazon to pay nothing in corporate tax. The company, famously or infamously, invests 100% of would-be profits back into the business for things like research, development, and marketing. Further, Amazon does not pay income tax in Washington State, where it’s headquartered.
Amazon takes tax write offs to the extreme.
More broadly, we’re shifting to a world that prioritizes the individual over the institution. More people are working for themselves, without the resources of Amazon.
It’s hard to build your own business. Using “write offs” can make it easier. Let it.
My LLC Stack:
Company Formation: Stripe Atlas / Direct on IRS website
Compliance: Mosey
Bank Account & Payments: Mercury Bank / Stripe
Credit Card: AmEx Business Platinum
Bookkeeping: Quickbooks
Accounting: Geffen Mesher
Retirement Account: Backdoor Roth on Vanguard (2023), Carry Money Solo 401K (2024)
Workflow: Google Drive Suite, Notion (free)
Website: Squarespace + Substack (free)
Read Aloud:
Recommended Reading:
Just Write it Off!
State of Small Business, US Chamber of Commerce
Bureau of Labor Statistics, Small Business
LLCs for Side Hustles:
Business Formation FAQs:
Business Finance FAQs:
Tax Tips:
Do I Need an LLC?