Make your business official. Consider running your side job like a real business, even if you have no intention of turning it into something big. Open a separate checking account. Get an Employer Identification Number (EIN), a federal identifier, for tax purposes. Apply for a state tax ID, if your state requires one. And, consider working with a tax professional who specializes in helping small business owners.
Track your earnings and expenses. Store your receipts and use a spreadsheet or app to keep tabs on how much you earn and spend. If expenses are high and income is low, you may want to scale back your efforts or look for ways to reduce costs. As your earnings grow, eligible expenses can help offset a potential tax bill.
Find your sweet spot. Look for ways to efficiently increase revenues. Set prices to ensure your costs are covered and focus on your most profitable products or services. Target your best customers and build a repeat business. Market your side business through social media to grow a following.
Be realistic. As your business grows, you may be tempted to quit your day job. Before you turn your efforts into a full-blown career, ask yourself:
- Is it scalable? It will likely take additional resources to turn your hobby into a full-time moneymaker. Will you need to invest more of your money in the business? If so, how much? Also, evaluate your ability to obtain more supplies and whether you’ll need to hire an employee or two.
- Is it sustainable? Consider the size of your market and demand for your product or service. Who is your competition, and where do you fit into the mix? Will your offering still be relevant in five years? Ten? Trust the numbers over your instincts.
- Can you afford to give up the benefits that come with your regular job? Going solo often means purchasing health and disability insurance on the open market. You’ll also be responsible for establishing your own retirement savings, federal tax withholding (called FICA) and estimated quarterly taxes.
- Are you ready to become an entrepreneur? Think carefully about whether you’ll earn enough income to support yourself. Going out on your own is exciting, yet it can also mean a change in lifestyle. You will need to be ready to put in the time and effort to grow the business, while being mindful of how the career change could affect your personal finances.
Get professional help. Tap someone with financial acumen to help you assess your business. And consider consulting a financial advisor to discuss the financial implications of running and potentially expanding your business venture.
Thomas A. Callaway CRPC®, is a Financial Advisor with Ameriprise Financial Services, Inc. in Paris TX. He specializes in fee-based financial planning and asset management strategies and has been in practice for 25 years. To contact him you can go to www.ameripriseadvisors.com/thomas.callaway or call (903)785-7000, office located at 2219 Lamar Ave Paris TX 75460.
Ameriprise Financial, Inc. and its affiliates do not offer tax or legal advice. Consumers should consult with their tax advisor or attorney regarding their specific situation.
Investment advisory products and services are made available through Ameriprise Financial Services, Inc., a registered investment adviser.
Ameriprise Financial Services, Inc. Member FINRA and SIPC.
© 2018 Ameriprise Financial, Inc. All rights reserved.