According to a recent study by Bankrate, nearly 40% of Americans have a side job. Of those with a side job, they rake in approximately $686 per month in additional income. That is a lot of money – and a lot of liability if you don’t take the right steps to protect yourself.
A few of the most popular types of side jobs we see among our clients include:
- Selling things online or at craft fairs (either resale or hand-crafted products)
- Providing services such as cleaning houses, child care, lawn care, etc.
- Renting property (as landlord or on Airbnb)
- Real Estate Investments (holding or flipping)
I myself had a successful online business that put me through college and law school, taught swim lessons on the side all through school, and currently dabble in real estate rentals, so I am intimately familiar with the ins and outs of a side hustle.
Step 1: Report & Deduct Income
Obviously, you need to be reporting this income on your taxes. If you don’t report it, not only are you on the hook for all the taxes you should have paid on that side income stream, you are also on the hook for interest and potential criminal liability for tax evasion. You definitely don’t want that!
You also must worry about your local county or municipal government. Say a neighbor noticed you conducting your home business (car in the driveway, packages going out in the mail, customers coming and going) and reported it. Now you have the problem of conducting an unlicensed business – which could result in a municipal summons, fines, or even the termination of your lease, if you are a renter. Yikes!
On the plus side, reporting your side income means you can make use of all the potential deductions you get from your side hustle. Do you use your car to drive to the post office or client’s houses? Do you have a closet or room set aside just for your crafting? You could have some nice deductions on your taxes for the business use of your home or car – along with many others. The recent tax reform bill gives you a 20% deduction on all that income, too!
Step 2: Create an LLCGoing legit on your side hustle also means setting up an LLC for it. Turning your side business into a separate legal entity (called a limited liability company) provides a protective buffer between your personal assets and your business’s liabilities. Your business liabilities can take the form of many things: It could be a pedestrian hit by a stick flung from your mower when you are mowing a client’s lawn. It could be the hand-knitted blanket you sell on Etsy is not flame-resistant and ends burning your customer who puts it too close to the stove. It could be a contract dispute between you and a buyer, or one of your suppliers.
If you have any assets – a car, a savings account, a house – you will want to protect these personal assets from the unhappy pedestrian, customer, buyer, or supplier. If you set it up right, this person can only go after your business assets and not your personal assets. If your business assets are still substantial, then you might look into insurance for your business, as well.
The process of setting up and maintaining an LLC is not hard or expensive – plus your legal fees for it can be deducted as a business expense. We’ve helped a lot of clients set up their own businesses, ranging from tiny to huge. We’ve had consultants and handymen and landlords and hairdressers and house cleaners come through our doors. We can help you set your LLC so that you comply with Missouri law and the IRS tax code and maintain the buffer between your personal and business assets.
Going legit on your side hustle also means setting up an LLC for it. Turning your side business into a separate legal entity (called a limited liability company) provides a protective buffer between your personal assets and your business’s liabilities. Your business liabilities can take the form of many things: It could be a pedestrian hit by a stick flung from your mower when you are mowing a client’s lawn. It could be the hand-knitted blanket you sell on Etsy is not flame-resistant and ends burning your customer who puts it too close to the stove. It could be a contract dispute between you and a buyer, or one of your suppliers.
If you have any assets – a car, a savings account, a house – you will want to protect these personal assets from the unhappy pedestrian, customer, buyer, or supplier. If you set it up right, this person can only go after your business assets and not your personal assets. If your business assets are still substantial, then you might look into insurance for your business, as well.
The process of setting up and maintaining an LLC is not hard or expensive – plus your legal fees for it can be deducted as a business expense. We’ve helped a lot of clients set up their own businesses, ranging from tiny to huge. We’ve had consultants and handymen and landlords and hairdressers and house cleaners come through our doors. We can help you set your LLC so that you comply with Missouri law and the IRS tax code and maintain the buffer between your personal and business assets.