Entering the corporate world with benefits may still not be enough. When that happens, you may need to turn and find a gig to compliment your full-time job. However, there is a possibility that your side job can offer a better upside compared to your regular work. You may even decide to vacate your position and focus on being your own boss.
In the new millennium, the number of workers on alternative arrangements like freelancers or independent contractors witnessed a significant rise compared to 10 years before. Today, over 25 percent of Americans are practicing the art of side hustles, according to a report by Pew Research Center.
If you plan on turning your side hustle into your legit business, you need to follow some steps to ensure a successful venture.
Choose Your Type of Business
You may follow the primary form of owning a business as a sole proprietor. Robert W. Baird & Co. CPA Tim Steffen believes that it works for most people. You only need to file for a tax ID and the required licenses and permits while avoiding federal government registration.
Experts, however, recommend the formation of a limited liability corporation. LLC provides business owners with liability protection and tax advantages. Startup business owners only need to register in the state where they plan to hold their office and operations. If you share ownership for a business, you need to organize your company as a partnership, corporation, or LLC.
Remember the Tax Man
Keep a close eye on taxes even if you are not making money. Most business owners will have difficulty in making money at first, but that does not exempt them from tax.
Income taxes vary depending on the state where your business operates. However, it is essential for you to record your business losses and income on Schedule C when it is time to submit your federal tax return. Business owners can take advantage of taxes by deducting expenses like cell phone use and travel costs to compensate for what you provide for your business. Steffen states that it is possible even if your income is as small as $1,000.
Steffen also reveals that a tax-deductible contribution can help a business owner that is operating without expenses. Starting a Simplified Employee Pension account will help self-employed workers earn from their contributions of at least $56,000 this year. Also, the new Tax Cuts and Jobs Act provides a way to introduce qualified business income deduction. Businesses that are in the format of sole proprietorships, partnerships, and S-corporations will benefit from this tax break.
Open a Business Account
Owners must always keep their personal account and business funds separate. It is also essential for business owners to make sure that they find the best possible bank to place their money to ensure that they are getting the best interest rates possible. When you manage to find the perfect bank account, your business can take off. It is essential for those transitioning from side hustle into full-blown companies to seek the expertise of a tax professional to help them maintain their corporation.