This is an article “How To Engage In Side Hustles Legally” by Marc Primo
Nowadays, more individuals are relying on side gigs to bear the rising costs of basic needs. Since the pandemic hit, inflation rates have hit hard, only to be exacerbated by rising gas prices brought about by Russia’s invasion of Ukraine. At the rate gig economy numbers are going, experts predict that half of the entire US workforce will be engaged in various side jobs by 2027 as the global gig economy balloons to $204 billion in gross volume. The big question is: how do you make your side hustles legal once they take off and make it big?
As everyone knows well, the Internal Revenue Service (IRS) also covers side gigs as they earn you money and are subject to taxes. Aside from the IRS, there’s also your area’s Secretary of State or Department of Revenue. Knowing how to keep things legitimate may pave the way for more tax payments, but they can also offer you several benefits.
Here are some tips you can consider to keep your side hustles legal and legit!
The difference between a hobby and a business
Some professionals who engage in side gigs start with passion projects fueled by their hobbies. Whether they turn it into a legitimate business or retain it as a hobbyist venture, the IRS will be able to distinguish which one is which.
To be clear, hobbyist ventures entail activities that may involve money and do not focus on making profits. The problem is that the IRS has a checklist of things that factors in when determining when your activities are business-related or otherwise.
Your passion projects and hobbies become a full-fledged business when you keep books and records to document your activities and transactions. You make some sort of profit out of it, whether on a regular or seasonal basis. Of course, it’s easy to spot a business when your livelihood relies on those activities’ income or when you suffer losses from them.
The IRS will undoubtedly tag your hobby as a business if you have earned some type of profits from similar activities in the past or have accrued certain assets from them.
For example, if you are skilled in teaching Photoshop and signed up for live streaming services with the intent to teach online classes to those who want to learn for a certain fee, that may already be considered a business.
If you are still confused about whether what you are engaging in is a simple hobby or a business, get advice from an accountant or a business expert to avoid any misunderstanding with the IRS.
Considering the costs of a new business venture
Individuals who want to make some side profits from their passion projects but instead lose money building them can seek help from the IRS. The service will allow you to deduct your losses from your other income sources, provided that you enlist your project as a business startup.
When it comes to a business’s capital costs, you should first perform systematic market research complete with relevant surveys and expert advice from lawyers, accountants, and marketing specialists. The alarming fact is that 90% of new startups fail while only 50% of businesses make it to at least five years in operation, according to startup newsletter site Failory.com.
One way to make your new business venture stronger in terms of financial capital is to register as a partnership, corporation, or LLC and deduct organizational costs once you start operations. These IRS deductions can only be availed if your business takes the necessary legal steps for registration, protection, and compliance with all the concerned business regulatory bodies.
Protecting your side hustle
Registering as a legitimate business gives your venture protection, some financial leniency, and other federal benefits when it needs them the most. This step also means that you have to maintain your good standing and compliance with state and national laws by honoring the obligations that come with your registration.
You can protect your business through legal means by registering your brand’s trademark with the United States Patent and Trademark Office (USPTO). These may include assets you use for your marketing campaigns, such as words, brand names, symbols, devices, or the like to identify your business through commercial and trade activities.
Registering your trademark may be a step more advanced than you might want for a new business, but it will make your brand more authoritative and well-protected by the government. Visit CorpNet to learn more about registering your trademark and assets swiftly while also getting more resources about necessary business processes.
Another thing you should do to keep your side hustles legal is note all the necessary business permits, licenses, and other compliance requirements you need depending on the location you want to operate. States have varied requirements for businesses, and you’ll also have to review all of these along with the standard federal level regulations. The most common licenses you may have to secure are general business permits, zoning, land use, sales tax, health department compliance, environmental permits, and professional licenses.
Avoiding legal disasters for your side hustle
People take on side hustles to earn more money and help them be financially secure and with their professional growth. Once it turns into a successful business, owners should always take the necessary precautions to make every activity legal and avoid legal disasters.
If you plan to legitimize your new venture by registering it as a business, it’s best to review your employment contracts, tax obligations, and local business laws. The most common pitfalls the lack of business law may lead to are potential tax fraud, significant fines, and lawsuits with customers and suppliers.
To avoid these, you must first acknowledge that what you are doing is a business, review your tax compliance, consider partnerships or entering into corporations (especially if you plan to handle multiple businesses), and keep separate ventures apart from your day job’s earnings and activities. Doing all of these steps can help ensure that you run your business without anything to worry about as you grow it.