Thanks to the explosion of mobile technology, it’s so much easier for aspiring entrepreneurs to pursue their dreams and start their own businesses.
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. For many workers, therein lies a complicated question of balancing the two.
Today, we’re investigating how starting a side hustle works alongside your W-2 employment. You might be surprised by what we uncover.
How to Balance Your Side Hustle
Striking the right balance between fulfilling the needs of your current contract while starting up your own 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. Here are some things to 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.
In that case, 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.
Decide What to Tell Your Supervisor
If your contract doesn’t automatically uncover any problems with your new business, you then have a decision to make.
Even if you’re not legally obligated to tell your supervisor, you may choose to be upfront anyway. 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’ve got nothing to worry about.
Register Your New Business
If you do decide to be upfront with your current employer, then you may want to demonstrate your commitment to your new business by taking the legal steps of registering your business.
Registering 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.
As you might imagine, launching your own business while you still retain W-2 employment can be a recipe for a much more complicated tax filing situation.
But ultimately, how your new business is reflected in your taxes depends on your decision to incorporate or not. In the end, the effect on your taxes will play out one of two ways:
- Corporate taxes: If you decide to register your company as an LLC or some other form of corporation, then you’ll be taxed as such. This means that you’ll be on the hook to pay not only your own personal taxes, but also file a corporate tax return. Even if you don’t earn any income through your LLC, you’ll still need to file separately.
- Personal taxes: However, if you decide not to register your company as an LLC (you do retain the option to do so), then 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.
Ultimately, this is a very personal decision. We’ve noted above the benefit in registering your company, but there are pros and cons to both approaches. Just be sure that you consider every angle before you commit to one route, as it sets the tone for your business’s long-term future.
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 providing small business owners the resources and knowledge they need to give their companies the best possible launch. Competition is tough these days in every industry, and you can use a helping hand to maximize your impact on the market. If you’re ready to propel your business forward, check out our website and get started today!