As more people enter the side-hustle space, many often grapple with the idea of establishing a legitimate business entity. This is usually because their side-hustle is all about making extra money to supplement or enhance their income. On the other hand, establishing a business entity means paying fees and taxes that can chip away at extra earnings.
Thus, it is easy to understand why a new entrepreneur would be hesitant to go legit at first. But it is important to remember that having a legitimate business has more perks than downsides. So here are a few reasons why you should legitimize your business.
Avoid Legal Issues
Any time you earn money you must report and pay taxes on that income. In order to pay taxes on money that you earn as part of your entrepreneurship endeavors you must have a taxpayer identification number (TIN). For sole proprietors this is generally their social security or individual taxpayer identification number.
However, for many business entities an employer identification number (EIN) is required for tax reporting and paying purposes. In order to have a legitimate business entity you must obtain this or some other identifying number for your business.
In addition to a TIN you will also need to do the following to establish a legitimate business:
- Select a Business Structure
- Register the Business in Your State
- Get Necessary Licenses and/or Permits
Completing these steps will keep you in compliance at the state and federal level. You can thereafter easily report and pay your business taxes without having to worry about fines or imprisonment.
Protect Yourself Against Litigation
In addition to avoiding tax-related legal issues, you can potentially protect your personal finances against legal action when you establish a legitimate business. Certain business structures such as limited liability companies (LLC’s) or corporations legally shield business owners’ assets from being seized in law suits.
Establish Your Business Identity
It is also important to establish your business identify so that you can avail opportunities to help you business grow and expand. Setting up your business bank account is one of the most important things that you need to do in order to access funding for your business.
In order to get loans, grants, credit cards, lines of credit, etc. most lenders or grantors require that you have a business bank account. You must have a legitimate business entity in order to set up a business bank account. Banks require that you present your articles of organization and business licenses to establish a business banking relationship with them.
You will likewise need to have a legitimate business structure in order to process credit cards, digital payments, wire transfers, etc. Also, in order to legally hire and pay employees you must have a legitimate business structure.
Thus, it is better to start your business ownership journey off on the right foot from the beginning. This way you don’t have to waste precious time doing these things once your business starts to generate revenue.
Improve Your reputation
The average consumer prefers to do business with a legitimate, reputable operation. This provides them with protection against fraud and abuse. Establishing a legitimate business entity can give your customers the confidence to do business with you.
Your social media presence is also an important aspect of establishing and improving your business reputation. Without a legitimate business operation, it is not very wise to establish a social media presence for your business. You can easily subject yourself to legal troubles as mentioned earlier.