Thanks to the explosion of mobile technology, it’s so much easier for aspiring entrepreneurs to pursue their dreams and start their own businesses, whether it be quitting their current job to go all-in on the project or simply starting a side business.
But starting your own limited liability company is tricky to do without some kind of dependable income. For many Americans, the best option is to keep their day job while starting a side business.
Thankfully, an individual can form an LLC for their side business while working a W-2 job. Your employment status bears no weight on a state's decision to approve your LLC registration.
Registering your side business as an LLC provides protection that you simply wouldn’t be able to enjoy under any other circumstances. And in doing so, you’re minimizing the chances that any potential problems will emerge down the line while protecting yourself and your personal assets from being included in any liability claims or lawsuits.
Let's take a look at how starting a side business works alongside your W-2 employment.
Starting an LLC Side Business
Striking the right balance between fulfilling the needs of your current contract while starting an LLC side business can be tough to gauge at first.
Even so, you at least have a few clear guidelines to help you get started. After all, you don’t want to jeopardize your current employment as that’s a means to at least keep money flowing in while you dump money into your side hustle.
According to SideHustleNation.com, a 2019 survey found that 45 percent of Americans reported that they have a side hustle. To put a number to the percentage, that equates to around 70 million people. The percentage jumps even higher when looking specifically at Millennials surveyed, with 50 percent of the demographic having a side hustle. They also found that those who have a side hustle spent between 11–16 hours a week working on their side hustle (that’s on top of their current part- or full-time job).
With all of this being said, here are some things that you should keep in mind.
Honor Your Contractual Obligations
The most obvious way in which you can prevent any issues from popping up and disrupting your burgeoning business is to brush up on your current contract.
Even if you don’t have a valid contract with an employer, you should at least revisit the employee handbook or other binding documentation. This is especially crucial if your business is at all related to your current line of work. If there is any sort of breach of contract or conflict of interest, it could result in you losing your job.
You’re going to want to be sure that you don’t have a non-compete clause that prevents you from engaging in outside work that might conflict with your current role. The last thing you want as a new business owner is to be saddled with a lawsuit that could wipe away any amount of money you put aside for starting a side business.
Decide What to Tell Your Supervisor
This is going to be one of your toughest decisions you’re going to need to make. If your contract doesn’t automatically uncover any problems with you starting a side business, you then have a think about if you want to talk to your boss or supervisor about your entrepreneurial endeavor.
Even if you’re not legally obligated to tell your supervisor, you may choose to be upfront anyway so there are no secrets or so people don’t find out about your side hustle and think you’re doing it behind their backs or trying to pull one over on the company or staff. You wouldn’t want to damage your professional reputation by acting in a less-than-savory manner or mishandling what might be a very delicate situation for all involved.
Your ultimate goal may be to set aside your W-2 employment in favor of your own business, but if there are no conflicts between the two at this time, you should have nothing to worry about.
Get Your Taxes in Order
As you might imagine, starting a side business while you still retain W-2 employment can be a recipe for a much more complicated tax filing situation. Due to the addition of your side business and the taxable income that comes along with it, you may want to consider hiring an accountant or CPA if you don’t want to tackle all of that on your own or put even more work on your plate.
When it comes to paying taxes, an LLC's profits "pass through" to the owner who reports this information on their personal tax return. In the end, your taxes will play out one of two ways:
- Corporate taxes: You can elect to have your LLC treated as an S Corporation for tax purposes. This can reduce the amount of self-employment tax you owe. Use this calculator to see how much money you could potentially save at tax time.
- Personal taxes: Under a standard LLC setup, you’ll be required to report any LLC income on your personal tax return. This requirement is most frequently satisfied by filling out Schedule C on Form 1040. Paying estimated taxes throughout the year will likely be required as well.
Be Prepared for Long Days and Working Over the Weekend
One thing you need to make extremely clear is that your side hustle will not interfere in any way with your current job. If you are obligated to work 9-5 with your employer, that entire time needs to be spent focused on growing their business and doing the job you were hired to do.
Should you cross the line of their business and yours, it could result in you being terminated. This brings up the question of when is the best time to work on your side hustle? The simple answer is anytime you aren’t at your current job. This means working all night during the week to get your side hustle moving as well as spending your weekends entrenched in starting your side business and building the foundation.
No one said that starting a side business, or any business for that matter, was going to be easy. But if you are truly passionate about your new business, it is totally worth it.
No Business Like Side Business
Getting a new business off the ground is stressful enough, even without managing your W-2 work at the same time. So, if you do run into trouble (or, ideally, before any complications arise), you might want to have some help to stay on track.
At Incfile, we specialize in helping people start an LLC. You can launch your side business for $0, plus your state fee. We have assisted more than 250,000 entrepreneurs and small business owners to form and grow their businesses. Let us guide you on this exciting journey of starting a side business.