Are you running a Business or Hobby: 3 things you need to understand

The majority of people miss taking the important steps of protecting themselves and their business. One of the biggest, if not the biggest reason for this, is because they often think to themselves, “this is just a hobby to make a little extra money, I’m not running a business.” Let me caution you in this: while you may be here just to make an extra coin or two, doesn’t leave you safe from the liabilities that still exist. And that isn’t good for you or your “little business.” 

So, here are 3 things you must consider: 

1. Sole Proprietor: Once you start receiving money for your services and/or goods you are automatically considered a sole proprietor, even without filing anything, aka: you’re personally liable. Being personally liable for your hobby means that if anything goes wrong, you can be sued and your personal assets may end up in jeopardy. 

Resolution: Set up a legal business entity to help shield yourself from personal liability. 

2. General Taxes: Did you know that once you start making over $400 you have to claim it on your taxes? If you’re making under $400 a year, then you can reasonably consider your side hustle as a “running a hobby” and not a business. In that once instance and in the eyes of the IRS, and you don’t need to report the income on your tax return. 

Resolution: Keep detailed records of your income & expenses to protect yourself against any potential audits and track if you go over the $400 threshold. 

3. Employment Tax: If you’re over that $400 mark in the eyes of the IRS you’re running a business and are considered “self-employed” which means you know need to pay self-employment tax. 

Resolution: Once you’ve established yourself as a business if you don’t trust yourself to save a little for old uncle Sam (aka: the IRS), then hire an accountant to pay you from a payroll and save a small portion from all your income for taxes. 

Need a little more help with managing your business? Sign up for The BizNess Course and learn how to properly manage your business and much, much more.