So you want to start a business? Let’s talk.

It’s an exciting prospect isn’t it? Being you own boss or starting your side hustle – because like everyone has to have a side hustle these days. When you start out you’ll want to report the activity on your schedule C until a larger profit can be made from it. I remember the many side hustles I had while at the University. I sold my art online, grocery shopped for Shipt, did remote freelance work and even became an Uber Driver. Well… the I only had like one customer through Uber and was terrified the entire time that I was going to be the victim on some real life crime show… but… At least all my bills would’ve been paid. Would’ve gone down as a boss lady!

Anyways, I know you’re excited but it’s important to make sure your business idea can qualify as a business. One of the first things you need to ask yourself: CAN YOU MAKE A PROFIT FROM IT?? Bottom line, is that the IRS is only actually interested in the mola your business is making. If you are consistently making a loss on your side hustle, the response is – that’s cute but not a business sweetie. They will think your trying to get credit on your little hobbies by passing it off as a business. So whether it’s fishing, hunting, dog breeding, a retail online store, babysitting, or etc, figure out if you can be profitable.

So if you’ve done your research, you already know that the first year of many business are expected to produce a loss. This is mostly due to start up expenses. As a result the first year doesn’t normally reflect the true potential success of a business. The IRS does recognize this fact and considers this as a “circumstance beyond your control.” So don’t fear if in the first year or so you project a loss.

Now let’s go about the actual running of the business or side hustle. The IRS takes into account of how you manage the activity. It’s important that you keep documentation of all income and expenses directly related to that activity in a professional manner. This means keeping accurate and up to date books. (Shameless plug, this is something I can assist you with through Quickbooks Online, godaddy and other common bookkeeping programs) However, whoever you hire to manage your books should definitely know what they’re doing.

No matter how simple the activity may seem, it’s important that you give it a good amount of effort and time. Meaning, there should be actual documented efforts that you tried to increase the profitability of the company. This can be done in a variety of ways. Perhaps you advertise you business through creating a social media page for what you do. It’s 2019, social media is a platform that no one should let go to waste. Let’s say you’re selling clothes but it’s still being operated out of the home. Try to seek out your local area for a marketplace you can sell your clothes at. You breed specialty show dogs for income? How about having your customers send awards or reviews that their dogs have won various awards. If there’s a license or certification that must or could be received in order to even start your business, this could really help in confirming the legitimacy of your business.

“The definition of insanity is doing the same thing over and over again, but expecting different results” -Albert Einstein

If the same old thing you’re doing, isn’t working, change up the operations of your business. Remember, you’re a new business owner! You have the chance to shift operations around in order to find your sweet spot and grow!

That’s all I have for your today. By following these guidelines you should be able to able to turn your hobby into a business. Then, after it starts profiting more than 30k a year, it’ll be off your schedule C and be able to file it’s own return.

Good Luck Bosses!

~The Small Accountant