You may experience an empowering moment when you start implementing the side hustle and get the first income. Although the side hustle can be a passive income generation, it would be better to get an establishment and business structure that propel your business to prosperity. You should start with the paperwork to legalize your side hustle and decide if the business will be a sole proprietorship or limited liability company. These steps will help you legalize your business.
Make the Business IRS Official and Choose a Suitable Structure
1. Sole Proprietorship
Legalizing the side hustle means you would pay taxes, and it is better to make it IRS official and choose the appropriate structure. Sole proprietorship allows a business owner to cash the checks and pay taxes under their name. Your property may be seized if your business goes bankrupt or when there is a legal dispute.
Advantages of a sole proprietorship
- The sole proprietorship structure has fewer business fees
- Simplified business ownership
- Less paperwork
- A more straightforward tax setup.
Disadvantages of a sole proprietorship
- However, since you will be the sole business owner, it might be challenging to get financing and business credit
- It might be hard to sell your business
- You may face no liability protection.
2. Limited Liability Company
On the other hand, the limited liability company is the best structure for handling more money. It offers added protection to your side hustle and not personal assets. You may ask the state secretary in your state about the exact LLC forms, fees, and guidelines when registering the LLC business.
Advantages of a limited liability company
- You can choose a limited liability business structure if you want to manage the company with other partners as there is no restriction on the number of members allowed.
- Moreover, the members will have flexibility in structuring your company, and the owners will not be personally responsible for the business debts.
Disadvantages of a limited liability company
- Your company will have pass-through taxation without so much annual paperwork and formalities.
Related article: 12 Questions to Ask yourself Before you Launch a Business
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Get an Employer Identification Number (EIN)
The employer identification number is given exclusively by the federal government; this number is essential when you don’t want to hire another employee. According to Side Hustle Nation, the (EIN) is a requirement for opening a business bank account; a business account will help keep the finances straight and ease of filing your taxes.
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Get a Business Bank Account
A business bank account makes it possible to separate personal and business finances. You can dedicate the business bank account for business proceeds deposits and use it to pay the expenses. Even when you register the business as a sole proprietor, it will be wise to have a separate bank account for the side hustle. You may need a business credit card for the business to earn the extra rewards which are associated with the credit cards.
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Set Up a Website
Most businesses operate online, and it is better to secure a domain name for the side hustle. The website does not have to be expensive; you can use the free website building tools. The website will showcase your work, making it easy for people to contact you. A domain identifies your business, and others will not build their business around your name. This makes your company appear more legit to consumers.
Related article: 9 Websites to help you Launch your Side Hustle
Final Thoughts
Sometimes getting a business start-up off the ground might be challenging, and it would be wise to legalize your side hustle. Legalizing the business might add a protection layer and make it easy to manage your business finances. You might register the business with IRL and get a business name and bank account to separate the business from the personal accounts. Good luck managing your business starting your business.
“Thanks for reading if you need more help or have questions, feel free to reach out.”
