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When To Incorporate Your Side Hustle
Bankrate.com issued a survey on America’s love affair with the side hustle – the side gig or job other than your primary money-maker.
Interesting results included:
- 37% of Americans have a side job.
- Side hustlers make $686 per month on average which comes out to a little more than $8,200.
- Most treat the income earned from side hustles as disposable income with 38% needing the extra income to cover ordinary living expenses.
- 11% worked a side job every week.
- The likelihood of having a side gig declines with age.
- Home repair and landscaping are two of the most popular side hustles which is one reason the bankrate.com survey found men made more than women on their side hustle.
- Online sales, crafts and child care were the next most popular side jobs.
- 14% of men claim to have a side hustle while only 9% of women.
When Do I Incorporate My Side Hustle?
We found these statistics interesting, but equally interesting is trying to determine when you need to incorporate your side hustle. While incorporating may seem daunting, it can be done in a matter of minutes online with Swyft Filings. The incorporation fees, including state fees, average a few hundred dollars, so as soon as your side gig goes beyond just something you do for fun, you may want to consider incorporating. While there is no magic number of when the amount of money justifies incorporating the cost of incorporating is a few hundred dollars and you will have to file a separate business tax return, so as soon as the revenues can cover those fees, you should consider it.
Don't Let Your Side Hustle Become the End of You
Most small endeavors form as LLCs which often give you the most flexibility and the least administrative headaches. The primary benefit of turning your side hustle into an LLC is personal asset protection. If something were to go horribly wrong while pursuing what you thought was a weekend passion that brought in a few extra dollars, your personal assets could be at risk. If there was a lawsuit related to a product or service you provided, a financial obligation you could not fill, or an unforeseen accident, you would be personally liable to pay off any judgment or debts. While just staying a sole proprietor may be the easiest thing to do, it is not always the most prudent.
Tax Benefits - Even For Your Side Hustle
By incorporating your side gig, you may be able to save on your taxes. Suddenly, the musical instruments, photography equipment or ingredients for your world famous cookies may become deductible. That booth you paid for at the farmer’s market? The website you had built to better market your gig? Your business expenses might all be expensed and having an LLC established raises less red flags with the IRS than when you try to deduct these types of things as a sole proprietor. Some find it beneficial to form an LLC even if there is a loss at the end of the day because of certain tax breaks. You would want to speak with an accountant to learn more about how you might benefit from incorporating.
Incorporating is the First Step to Transforming the Side Hustle into a Real Business
For many, the side hustle is a way to test the waters for turning your true passion into a business while still holding down a steady job. When it is time to take the full leap as an entrepreneur, having your business incorporated makes it that much easier. It is also one administrative step already taken care of so you can hit the ground running and seek investors, more customers or more vendors.
Finally, Get Some Street Cred
We probably just lost some "cred" with that headline, but you know what we mean. Whether you have a booth at the farmer’s market or you are trying to get a gig to do some home repair, having an entity set up builds credibility in the eyes of consumers. Customers often want to see an established brand and being incorporated is the first step to making that happen. Some customers may be weary of dealing with individuals thinking they are the "fly-by-night" hucksters who will just take their money. Incorporating shows that you are serious and intend to stick around.