Starting a side gig or side hustle is a great way to earn some extra income. You can start a side hustle doing just about anything. There are many ideas out there sharing the best side gig ideas. However, before starting a side hustle, there are some things you should know. Here we will detail 3 things everyone should know before they start a side gig.
A frequent questions asked by budding entrepreneurs is whether or not they have to incorporate their business. For someone that is looking into starting a side hustle, the answer is not that straightforward. The answer to this question also depends on what you side hustle is going to be doing.
Forming an LLC and formally incorporating is a must for some side gigs. If you are going to collect sales tax, pay employees, and open a bank account, you need to form the proper business entity. With that in mind, changes are your side hustle will just be something you are doing. The amount of revenue you generate also might not be a lot. If this is the case, you can get away without incorporating. You can just record any income on your personal tax returns.
If you are looking to eventually grow your side hustle into a legitimate business, then having an LLC might be the best thing for you to do.
If you are looking into starting a side hustle, then you should determine if you need insurance. If you are afraid of possible litigation, having general liability insurance is your best bet. This is not the case with all side hustles.
If you are physically interacting with customers, then you may want to look into liability insurance further. For instance, if you work on a customers house, or fix their computer, or even wash their car, having an insurance policy that will cover any damage may be in your best interest. You really do not want to be responsible for damaging your customer’s car when you are getting paid $30 to wash it. Having to repair a car’s body panel or repaint part of it can cost hundreds or thousands of dollars.
There are other types of liability insurance that you should be aware of as well. One type is professional liability insurance. If you business involves providing expert advice or services then you may want professional liability insurance. This is especially true if you are providing financial or investment advice, or are a real estate agent. Professionals should consider this type of insurance. You don’t want to put your savings or personal belongings at risk from an error you made working your side gig.
If you are contemplating starting a side hustle, you may be asking yourself how will I pay taxes? I mean, paying taxes on your normal 9-5 day job is easy. However, if you are earning extra income on the side, how do you avoid owing money at the end of the year?
A simple solution is to have your current employer withhold extra taxes from your paycheck. Your paycheck might end up being a little less, but the extra income you earn from your side gig should make up for it.
When it comes time to file your taxes at the end of the year you’ll most likely need to file Schedule C along with your Form 1040. This schedule is used for sole proprietors to report their income, expenses, and taxable net income from their side business. If you have a business partner then you may need to file Form 1065 for partnership returns.
Starting a Side Hustle – Go For It!
Now that you understand more about business incorporation, liability insurance, and how to pay taxes for your side hustle, you are ready to get it off the ground! If you have any questions, asking a professional might be in your best interest. If you want to make sure you are protected and have the proper business structure in place, ask an accountant or small business consultant. Plus, at the end of the day, setting up a business can cost money and be very complex. If never hurts to get professional advice for your business or side hustle.