The side hustle isn't so "side" anymore.
Maybe you're consulting for a few clients after work. Selling collectibles on eBay. Doing freelance graphic design. Reselling sneakers. Tutoring. Managing social media. Or turning a hobby into a few thousand dollars of extra income.
That's great. But the minute people start paying you, you've crossed an important line.
You aren't just making extra money. You're running a small business.
Here are five things to get right.
1. Pick A Name And Make It Yours
Before you print business cards or build a website, figure out what you're going to call your business.
Search your state's Secretary of State website to see whether the name is available. Depending on your state, you may be able to reserve the business name before officially forming your company.
Then check whether the website domain and social media handles are available. If you're serious about building a brand, you should also consider whether there are existing trademarks that could create problems.
You don't want to spend six months building "Bob's Amazing Consulting" only to discover somebody else already owns the name.
2. Do You Actually Need An LLC?
Don't spend $2,000 setting up a complicated business structure because you sold $600 worth of baseball cards on eBay.
Many side hustlers can begin as sole proprietors. But as revenue grows, or your business creates liability, an LLC may make sense.
A consultant giving professional advice has different risks than someone selling old clothes online.
And remember: an LLC isn't a magical tax deduction. It's primarily a legal structure. How your business is taxed is a separate question.
3. Get An EIN And Separate Your Money
Once this becomes a legitimate side business, treat it like one.
Consider getting an Employer Identification Number from the IRS. Open a separate business checking account. Consider using a separate credit card for business expenses.
Why?
Because twelve months from now, you don't want to be digging through hundreds of Amazon and Costco charges trying to remember whether something was personal or business.
Clean books make tax time much easier.
4. Understand Income AND Expenses
Here's where people get surprised.
Venmo doesn't make income tax-free. Neither does PayPal, eBay, or getting paid by check.
If you're consulting and someone pays you $5,000, don't assume all $5,000 belongs to you.
Depending on your circumstances, you could owe federal income tax, state income tax, and self-employment tax. Set aside money for taxes as you earn it.
At the same time, start tracking legitimate business expenses immediately. Depending on your side hustle, that could include software, advertising, supplies, shipping, marketplace fees, professional fees, business mileage, and potentially a qualifying home office.
For eBay sellers and other resellers, keeping good records of what you paid for inventory is especially important.
5. Know When You've Outgrown The "Side" Hustle
Let's say your consulting work suddenly produces $75,000 of profit.
Now it's worth asking bigger questions.
Should you remain a sole proprietor? Should you form an LLC? Could an S-corporation election eventually make sense? Do you need business insurance? Could you establish a SEP-IRA or Solo 401(k)?
This is where a few hundred dollars spent with a good CPA can potentially pay for itself many times over, depending on your situation.
And don't forget your employer. If you have a day job, review your employment agreement for restrictions involving outside work, solicitation, confidentiality, and competing businesses.
Side hustles are one of the easiest ways to become an entrepreneur without betting the entire farm.
You can test an idea, build customers, and generate income while your regular paycheck keeps arriving.
Just remember: once your hobby starts making real money, treat it like a real business.
Because the IRS probably will.
Ted Jenkin
CFP®, AWMA®, AAMS®, CEPA® Managing Partner & Chief Marketing Officer ยท Exit Wealth®
All opinions expressed in this newsletter is for general informational purposes and constitutes the judgment of the author(s) as the date of the newsletter. The opinions and views expressed by the author are personal and based on economic or market conditions at the time of publication. Actual economic or market events may turn out differently than anticipated. Nothing in this material is intended to serve as personalized investment, tax, or insurance advice. These opinions are subject to change without notice and are not intended to provided specific advice or recommendations for any individual.
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