So you have a great idea, something that you are good at that will earn you extra money. You have figured out how to market it and what to charge. There are few more, very important steps to take to get your gig up and running.
The federal, state and local governments have rules about establishing a small business.
The U.S. federal government views any earnings you bring in from your gig as taxable income, even when it’s on top of your full-time job. So when you’re starting a side business, it’s important to treat it like a real company. You’ve got to follow the appropriate local and federal laws as well as guidelines when you’re setting it up. Taking the proper precautions early on can save you a lot of headaches later on. Most importantly, it can prevent you from getting an unexpected tax bill.
If you plan on doing a side gig with an established company, the good news is they probably have already done a lot of the work for you. Most companies take care of insurance and permits, and you’re considered an independent contractor. This makes it easier on you when you’re filing your taxes later on. But, if you want to go it alone and start a side business on your own you need to do a bit of work. If you plan on dog-sitting or dream of launching a career as an artist or eco-guide, starting your side gig means you are a business owner. You are subject to laws and taxes governing small businesses. Here are steps you may need to take when launching a side business in Florida.
1. Decide if you need an Employer Identification Number (EIN)
Most side gigs do not need an EIN. If you are the only employee you do not need one. If you decide to hire help, then you will need to open an EIN to file taxes. Another consideration is if you’re working as a contractor for your side business and you don’t want to use your social security number on W-9 forms, then getting an EIN number is a smart idea. You can use that on your paperwork instead.
2. File the appropriate business licenses and permits
To run a side business legally, there are licenses and permits you need. The U.S. Small Business Administration has a website that shows every business needs some form of permit or license to operate. Rules vary and depend on what kind of business you run. See if you need a Florida Department of Business and Professional Regulation license on their website myfloridalicense.com.
Do you work from your house? Most counties require a home business license if you do any work from home. It provides revenue to the local government and licenses cost between $25 and $50.
Do you need an industry permit? Depending on what your business is, you may need an industry-specific permit. For example, if you intend to sell baked goods, you’ll need a food processing and safety permit. Salons, daycare facilities, dog-sitters, and more all need occupational permits.
What will you name your business? If you are doing business under a name other than your own Florida will require you to file a DBA application, which has a small fee. File a “Fictitious Name” registration with the Florida Department of State, Division of Corporations. To find filing fees and to register a name online, visit www.sunbiz.org.
3. Select a business structure
Most side gig businesses start out as a sole proprietor, which is a smart option. But over time, your needs may change. You may eventually want to consider switching to either a limited liability corporation or incorporating the business. Here’s a breakdown of your options.
Sole proprietorships
Under a sole proprietorship, one person is in business for himself. It’s pretty much the easiest type of business structure to take on. You don’t have to file any extra paperwork, and there are no legal formalities when you want to change up your business. However, as a sole proprietor, you are completely responsible for any debts you take on due to your business dealings. For example, if you get into a dispute with a client and he sues you because you are a sole proprietor, your personal assets are fair game in a suit. So if you intend to grow your business beyond a one-person operation, you may want to look at other options early on.
Limited Liability Corporation (LLC)
An LLC is one of the newest business structures, but it’s becoming increasingly popular. Essentially, an LLC protects your personal assets from business debts. Earnings and losses are reflected on your personal income tax returns. Therefore, LLCs have fewer paperwork requirements than other structures. Many small businesses opt for an LLC to protect themselves in case of lawsuits. Florida makes filing easy, you can find out more at Sunbiz.org. Filing your business structure can cost anywhere from $200-$1,000, depending on fees. Fun fact: legal services like LegalZoom can help you file appropriately for far less than it would cost hiring a private attorney.
4. Do you need insurance? Whether or not you need business insurance really depends on your risk. But these questions are a good place to start.
• Do you use your car to get work done?
• Do customers or business packages come to your home?
• Do you work with children or animals?
• Do you process payment information or handle other sensitive material?
• Could anyone get hurt or sick as a result of your business?
• Would a lawsuit or inventory loss leave you broke? You may think your side gig is too small to need insurance. But if you’ve answered yes to any of these questions, personal insurance may not be enough. But insurance for a side gig doesn’t have to wreck your budget. You can get a policy for $300-500 a year.
5. Find a system for invoicing and tracking expenses (and profits)
Managing taxes and income can be difficult but there is an APP for that! Before you generate any income make sure you know how to track it. There are some great small business tools available for a nominal fee. Take your time to check them out. Opening a business bank account can help you figure out if this side gig is making and money. Having a business credit card will help you track your expenses as well. You should always keep copies of your receipts to help you during tax season when you file your returns. And, those receipts can also help protect you in the case of an audit. Try a receipt-management system like NeatReceipt, or Shoeboxed to manage your records.
6. Figure out how you will handle taxes
Yep you have to pay taxes on your side income. All of your gig earnings are taxable. It’s important to plan ahead so you don’t get hit with a surprise tax bill in April. You have two options for managing your taxes: submitting estimated or quarterly taxes or adjusting your W-2 withholdings.
With a side gig, setting aside money for taxes is entirely up to you. And if you don’t pay enough taxes throughout the year, you can get hit with an underpayment penalty. If you expect to owe more than $1,000 in taxes for the year due to your side gig, then you need to file estimated taxes. To figure out what you owe, estimate what you think you’ll make for the year. Then, send in four payments throughout the year. To prepare for those regular payments, set aside 20 to 30 percent of everything you earn and put it in a tax savings account that you touch only when making tax payments. That way, you don’t have to scramble to come up with the money for your tax bill.
If estimated taxes sound like way too much work and you have a full-time job, you can skip quarterly payments and just adjust your W-2 withholdings. Calculate how much you owe in taxes for your side gig, divide that number by the number of paychecks you get in the year and set up a meeting with your human resources department. You can fill out a new W-2 where you withhold extra amounts of your income for federal and state taxes, eliminating the need for estimated taxes.
I hope this was helpful, it really is just a few steps to being a small business owner!
Not sure yet? Check out my Blog “Tips to Start a Side Gig” to get some ideas. Do you still need help? Florida Small Business Development Centers have information on starting your business. Check www.floridasbdc.org to find workshops or individual assistance starting your business.
Alicia Betancourt is the University of Florida- Monroe County, Family and Community Development Agent for Extension Services in Monroe County. If you have any questions, please send an email to abb@ufl.edu.
An Equal Opportunity Institution. UF/IFAS Extension, University of Florida, Institute of Food and Agricultural Sciences, Nick T. Place, dean for UF/IFAS Extension. Single copies of UF/IFAS Extension publications (excluding 4-H and youth publications are available free to Florida residents from county UF/IFAS Extension offices.
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