Making that Side-Hustle Legit: Important Considerations for a Home-Based Business

Posted by Michael Jenkins on Thursday, February 16, 2017

More and more people are beginning to make a business of a side-hustle or side gig for a variety of reasons. Whether it’s selling handmade goods on Etsy, renting a room on Airbnb, craigslist arbitrage, or any other creative way to make some additional cash; there are some important legal considerations that you should be thinking about as you become a small business. (That’s right whether you think of yourself as a small businessperson or not, you are becoming one when you take the plunge into that side-hustle.)

Here is a partial list of legal issues to think about:

Business Entity Choice – Should you become a limited liability company? What about a corporation? In what state should you organize? The primary benefits of organizing your business in a separate legal entity are limited liability and segregation of business finances from personal finances. If you are a one-person shop, organizing a business entity is probably easier than you think.

Taxes – Are you selling goods or services in a manner that requires a sales tax permit? Do you need to get a separate tax ID for the business? How will you allocate business expenses? A little bit of tax planning on the front end can often save a lot of headaches and cash on the back end.

Zoning – If you are operating the business out of your home is the business use a conforming use? Is a variance required? Are there restrictions on signage? What about restrictions on number of employees, number of guests, or hours of operation? Take a look at your local zoning ordinances. If you have questions, call the city or consult a real estate attorney.

Licensing – Does your business require local, state, or federal licenses or permits? Watch out for the services industries. Whether its food, drink, hospitality, or personal services many states and localities have licensing and permit rules that control the operation of a small business.

Insurance – Do you have the right coverage in place? Do homeowners or renters policies cover your business, or do you need to obtain a business policy?

While each of these issues may seem daunting, there are plenty of good folks out there to help you and your business find your way. Reach out to nonprofits or governmental organizations that help small business owners. Find good professionals: business insurance agents, CPAs, bankers, and lawyers. Finally, take a deep breath, you’ve got this.