The Side Hustle Business is Booming
More people are making extra money with gig work, like rideshare driving and vacation rentals. Side hustle business is growing with no signs of slowing down anytime soon. If you’re a gig worker, you can make a full-time living doing the kind of work you enjoy. But the only way to protect your personal assets is to form a company and get paid as a business.
Since most gig workers are independent contractors and not employees, many companies like Uber, Airbnb, and TaskRabbit will pay you as a business. Even if you’re doing side hustle business as an individual, you can still register a company and update your gig profile to get paid as a business.
If you’re working as an independent contractor, the IRS considers you to be in business as a sole proprietor. Doing gig work as a sole proprietor is allowed. But unless you have a registered Limited Liability Company (LLC) or Corporation, all your personal assets are vulnerable to potential tax and legal matters.
Sole proprietors don’t have liability protection in the event of bankruptcy or a lawsuit. If you’re named in a legal matter, your personal assets can be considered to satisfy a judgment if you’re at fault. For instance, say you’re a rideshare driver. The rideshare company may offer some insurance, but that only covers your rider, the rideshare company, and you while you’re on a ride. If you get into a collision or damage someone’s property, but you’re not on a ride, you’re personally liable. This means that if you’re sued for something that isn’t covered by your gig company’s insurance, you’ll have to pay any and all costs if you’re found to be at fault.
The only way to protect your personal assets from business tax or legal matters is to form a company – either an LLC (Limited Liability Company) or a Corporation. The Corporation business structure can be complex and is usually more than a side hustle business needs to protect itself. To simplify business management, taxation, and business compliance, most entrepreneurs choose to form an LLC.
When it comes to forming a company, many entrepreneurs choose the Limited Liability Company (LLC) for the following reasons.
An LLC offers limited protection against personal losses related to business tax and legal issues.
An LLC doesn’t have to file tax returns at the company level. LLC owners simply report business income and losses on form Schedule C with their personal tax returns. Pass-through taxation means you’re only taxed at the personal level, not the company level. This can save most small businesses a lot of money each year.
The LLC business structure is easier to manage and requires less official reporting. You can form an LLC with just one owner (called a manager or member).
If you ever decide to grow your business, there may come a time when you want to raise extra capital. Investors prefer to lend money to registered companies over individuals.
It may seem like overkill to form a company for a side business. But without one, you’re not protected if you’re sued. Some states charge more for filing fees than others, but you can write off the annual fees. And it’s well worth the money to protect your personal savings, retirement funds, and property from being seized in a lawsuit.
Some gig companies require you to sign up with your social security number, so they can conduct background checks. But once you’re signed up, you can log into your profile and add your company name and EIN (employer ID number) to start getting paid as a business.
If you don’t have employees, you can form a company using your social security number. But you’ll have to use it on all business tax and legal documents, which exposes your personal information. We recommend applying for an EIN with your business formation package to help prevent identity theft. You can also apply for an EIN with the IRS once your company has been formed if you want to apply on your own.
Whether you’re a Tasker, BnB host, rideshare driver, or do other gig work, the IRS considers you to be in business as a Sole Proprietor. You can work and pay taxes as a sole proprietor, but all your personal assets are exposed without a registered company. If you’re named in a lawsuit, your savings, retirement accounts, and personal property are all at risk of being wiped out.
The only way to protect yourself is to form a company. An LLC (Legal Liability Company) is an easy and affordable way to separate business and personal assets. With an official business, you can update gig work profile(s) with your company name and EIN to start getting paid under your company name. Your company is separate from you personally. So if the company is ever sued, your personal assets will be shielded from any business-related liabilities.
The main benefits of forming an LLC are personal liability protection, lower tax rates, simple management, and better investment opportunities. Because the LLC business entity is less complex (and less expensive) than a Corporation, it’s the most popular entity among small businesses. Once your company is formed, you can update your gig work profiles to include your business name and EIN. Contact your gig company if you need help with updates.
If you’re ready to start getting paid as a business, you can order an LLC formation package online today. With just a few details and payment, we can start processing your order in as little as one business day. Track your order in real time with your free account dashboard. Your order will include loads of free forms, alerts, and resources to help you start and manage your side hustle business in one place. For help and more information, check out our support page, reviews, and competitor comparison. Join thousands of satisfied entrepreneurs when you start a business with MyCompanyWorks.
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This entry was posted on Monday, December 19th, 2022 at 8:12 am and is filed under Starting A Business, New Business Ideas. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.