Side Hustle Legal Basics: Licenses, Taxes, Insurance and Your Day Job

Starting a side business can be simple, but a few legal checks help avoid problems with your employer, taxes and customers.

Check your employer rules

• Conflict-of-interest and moonlighting policies.
• Non-compete and confidentiality terms.
• Ownership of work created with company time or tools.
• Whether you may use your employer's clients or information.

Licenses and taxes

Many cities and states require a business license or registration, and some trades need professional licenses. Side income is generally taxable, and you may need to pay estimated taxes and collect sales tax. See our guide to business licenses and permits.

Protect yourself

1. Use written agreements with clients.
2. Consider business insurance.
3. Keep business and personal money separate.
4. Think about an LLC once income or risk grows.
5. Keep good records.

Marketing and online selling

• Be truthful in ads.
• Disclose paid endorsements.
• Post clear terms and a privacy policy if you collect data.

Terms to know

• DBA: doing business as, a trade name.
• Estimated taxes: quarterly income tax payments.
• Sole proprietor: a business owned by one person with no separate entity.
• LLC: a limited liability company.
• Business license: permission to operate locally.
• Self-employment tax: Social Security and Medicare tax for the self-employed.

Scenario

A teacher starts selling crafts online on weekends. She registers a DBA, opens a separate bank account, tracks sales tax and keeps receipts. When her income grows she meets a tax professional about estimated payments and forms an LLC. Her employer's policy allows outside work that does not conflict with her job, so she has no conflict.

Taxes on side income

• Self-employment income is generally taxable, including income from gig apps, freelance work and online sales.
• You may owe self-employment tax in addition to income tax.
• Quarterly estimated payments can avoid penalties.
• Keep records of income and deductible business expenses.
• Platforms may issue 1099 forms above certain thresholds, which change, but all income is reportable.

Business name and registration

1. Choose a name that is not confusingly similar to others.
2. Register a DBA or trade name if you operate under a name other than your own, where required.
3. Check domain and social handles.
4. Consider trademark searches before investing in branding.
5. Register with the state if you form an LLC or corporation.

Contracts with customers

Use simple written agreements or terms that cover scope, price, payment, cancellations and liability. See our guides to service agreements and independent contractor agreements. If you sell online, publish clear terms and a privacy policy. See our terms of service guide.

Insurance and liability

• Homeowners or renters policies often exclude business activities.
• Consider general liability or professional liability insurance.
• An LLC may help separate personal and business liability.
• Never mix personal and business funds.

Intellectual property and your day job

• Avoid using employer time, equipment or confidential information.
• Check invention assignment and non-compete clauses.
• Disclose where your employer's policy requires it.

Scaling up

1. Track revenue and profit monthly.
2. Open a business bank account.
3. Get an EIN if you hire or form an entity.
4. Consider a lawyer and accountant at key milestones.
5. See our guide to starting a business legal checklist.

Selling products online

• Follow consumer protection rules for advertising and refunds.
• Collect and remit sales tax where required.
• Check product safety and labeling rules.
• Respect trademarks and copyright in listings.
• Use clear shipping and return policies.

Freelancing and services

1. Define your services and price list.
2. Use written agreements.
3. Invoice promptly and follow up on late payments.
4. Track mileage and expenses.
5. Check professional licensing in your field.

Working from home and zoning

Many cities allow home businesses but limit signage, customer visits and noise. Renters should check leases, and HOAs may have rules. If clients visit, consider insurance and parking issues.

Protecting your personal assets

• Consider an LLC when risks or income grow.
• Buy appropriate insurance.
• Keep business and personal accounts separate.
• Avoid personal guarantees where you can.
• See our guide to LLC versus sole proprietorship.

Frequently asked questions