5 small details that can ensure the success of your new side hustle
- Hosted November 16, 2020
- By Admin
There are no guarantees in life and certainly not in business. As you weigh the pros and cons of starting a side hustle, perhaps the most critical downside you'll need to consider is the prospect of failure.
Now, that's not to say you should resign yourself to the likelihood your side hustle won't get off the ground—quite the opposite. From the beginning, you can meaningfully increase the chances your side hustle will succeed. With luck, your early efforts may lay the groundwork to scale your side hustle into a full-time business enterprise that allows you to quit your day job if that’s your goal.
The secret lies in the details. Successful side hustlers tend to pay close attention to the little things that less meticulous entrepreneurs overlook. And while plenty of "big-picture" entrepreneurs find immense success, it pays to be detail-oriented early on.
Details That Can Ensure the Success of Your Side Hustle
Ready to dive into the weeds? Paying attention to these critical details in your side hustle's early stages could help ensure its success.
1. The Right Business Bank Account Makes All the Difference
Think side hustlers don't qualify for business bank accounts? Think again.
Next-generation business banking solutions are open to part-time entrepreneurs, including those who haven't formally incorporated their enterprises. And choosing the right business bank account could make all the difference.
It's no secret that legacy banks make a lot of money by nickel-and-diming their customers—individuals and entrepreneurs alike. By contrast, business banking solutions with minimal fees allow their customers to keep more of their hard-earned money. That's money you can reinvest in your side hustle or pocket for personal use.
2. Mind the Pass-Through Deduction
One of the most popular components of the sweeping federal tax code overhaul passed by Congress in 2017 was the 20% pass-through deduction for "qualified business income," or QBI.
The details of the QBI deduction are eye-watering, so be sure to refer to IRS guidance and speak to a tax professional before assuming you're eligible. However, millions of actively managed sole proprietorships, partnerships, and S-corporations are eligible, including solo side hustles that aren't formally incorporated and don't produce massive revenues.
If you determine your side hustle is eligible for the QBI deduction, don't forget to take it. It could significantly reduce your federal income tax burden, even if your side hustle accounts for a modest share of your total income. Whether you choose to reinvest those savings into your side hustle or use them to defray personal expenses is your call to make.
3. Track Every Business Expense, No Matter How Trivial
While we're on the subject of income tax deductions, a word about tracking business expenses (two words, actually): Do it. This is one aspect of managing a side hustle where attention to detail can pay off.
Self-employed individuals, including side hustlers, can qualify for lots of potential business tax deductions. For example:
- If you have a home office or otherwise use your home to conduct your side hustle, you may be eligible for a slew of expenses related to "business use of home" (the home office deduction). These include a proportional share of home overhead expenses, such as utilities and housing payments.
- If you use your car for business purposes, you may be eligible to deduct mileage, depreciation, and other expenses.
- Many types of supplies and equipment used in the course of business are likely deductible as well.
Bottom line: Keep your receipts. You’ll need them. Beyond the tax implications, closely tracking your side hustle expenses keeps you abreast of your enterprise's financial health. That will prove increasingly crucial if you decide to grow your side hustle into a full-time business.
4. Take Advantage of Tax-Advantaged Accounts for Entrepreneurs
The last tax-related detail you'll want to mind is your eligibility for tax-advantaged investment accounts for the self-employed. Two standouts here are SEP IRAs and solo 401(k)s, both of which have far higher annual contribution limits than traditional IRAs and employee 401(k)s. As soon as your side hustle is official, ask a professional about the benefits of opening one of these accounts, and craft a plan to maximize your tax-deductible contributions.
5. Keep Regular Hours
It's tempting to work on your side hustle whenever you have a free moment, but that's not a recipe for productivity.
Instead, set regular work hours and try to stick to them, working personal and other professional obligations around them. Use what you know about your preferences to inform your side hustle’s schedule. For example, if you do your best work early in the morning, it may make sense to set aside 6 a.m. to 8 a.m. for your side hustle.
Anyone who follows through on their intention to start a side hustle deserves praise. After all, working full-time is difficult enough. Adding however many hours per week on top of your 9-to-5 obligations is practically heroic.
Unfortunately, not every side hustle succeeds. If yours is more than a passing fancy, you need to do whatever you can to ensure it remains viable for the long term. Start by paying close attention to the details we've covered here. You'll be glad you did.
Daniel Ward has had half a dozen side hustles in the past decade, ranging from freelancing to his new hustle of making face masks in Iowa, where he lives.
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