Whether you want to make some extra money, test a new business idea or pursue a passion, starting a side hustle can be very rewarding. But to build something sustainable and avoid legal or financial pitfalls, you need more than just passion.
Let’s explore how to start a side hustle while navigating the legal and financial aspects.
Choosing The Right Side Hustle
The first step is to choose the right side hustle. The possibilities are endless. You could take on freelance projects in your current career, launch an e-commerce store around a hobby, offer public speaking, provide personal services like home organising or even bake cakes for your community. Just type “side hustle ideas” into any search engine, and you’ll find hundreds of options.
To pick the right one, start by evaluating your skills, talents and interests, including those you use outside of work. A side hustle is more likely to succeed if it’s something you enjoy, are good at and can find enough customers for.
A useful way to brainstorm ideas is to ask yourself: What do people consistently turn to me for? At work, in your personal life or among friends, consider the tasks where others seek your help. Whether it’s organising events, doing hair and makeup, teaching or baking specialty desserts, these are signs of demand.
If people rely on your skills, there’s likely a market for them.
Time and money are also big factors. Freelance work in your current field might require minimal investment to get started, but entering a new industry takes more time and effort.
Once you’ve identified a potential side hustle, run a small trial. A test run gives you first-hand insight into the day-to-day reality of the business. You’ll quickly learn what works, what doesn’t and whether it’s something you want to pursue further.
Legal Structures And Liability
One of the most important decisions is how to legally structure your side hustle. Your choice will affect liability, taxes and complexity.
Sole Proprietorship: This is the simplest form. As Forbes Advisor explains, there is no separate legal entity. You and your business are one and the same. This means easy setup, but also unlimited personal liability: if things go wrong, your personal assets are at risk.
LLC (Limited Liability Company): A sole proprietorship offers no legal protection, so personal assets can be at risk if the business is sued. So, forming an LLC or corporation creates a legal separation between business and personal assets. With an LLC, generally only the business assets can be targeted in a lawsuit, keeping personal property protected.
S‑Corporation Option: An S‑Corporation is a tax designation, not a separate business entity. It allows a business, such as an LLC, to be taxed in a way that can reduce self-employment taxes. While the business remains legally an LLC, choosing S‑Corp status means profits and losses pass through to the owner’s personal tax return, often helping minimise overall tax liability.
As your side hustle grows, you should revisit whether your initial structure is still optimal. For instance, Forbes suggests switching to an LLC or corporation when your business earns enough that liability risks or tax savings justify the expense.
Financial Setup
The cost of starting a side hustle varies widely depending on the type of business you choose. One of the best ways to get a clear idea is to connect with people already running similar ventures.
You can join LinkedIn communities, listen to niche business podcasts or attend free online industry events where you can network and ask questions.
For side hustles that involve freelancing in your current field, startup costs are usually low. You’ll usually need a computer and phone separate from your main job, any specialised software for your industry and accounting software to track income and expenses for taxes.
If your goal is to work with larger companies, having a website can be useful. Companies may ask you to prove that you are independently employed and actively marketing your services.
Reporting Side Hustle Income In ITR
Earning additional income from a side hustle increases your overall annual earnings, which also brings added tax responsibilities. It is important to understand how this income should be reported in your Income Tax Return (ITR).
All sources of income, including side hustles, need to be included alongside your primary income. Overlooking it can lead to underreporting, attracting interest and penalties from tax authorities. All earnings, including cash payments, should be tracked and reported accurately.
Side hustlers should also be aware of deductible expenses. Costs incurred wholly and exclusively for running the business, such as software subscriptions, equipment, or business-related travel, can be claimed to reduce taxable income. For small-scale ventures, opting for presumptive taxation under Section 44ADA can simplify accounting and tax filing.
Unlike traditional salaried income, side hustle earnings usually do not have tax deducted at source (TDS). It is therefore essential to estimate your tax liability and pay advance tax to avoid interest or penalties. Maintaining detailed and organised records of all financial transactions not only simplifies filing but also provides necessary evidence in case of scrutiny by the tax authorities.
Seek Professional Help
While it’s possible to start small and handle much of the work yourself, seeking expert help can prevent costly mistakes down the line. A tax advisor or accountant can guide you in claiming eligible deductions and planning your tax payments, while a lawyer can assist with contracts, intellectual property protection, and company formation.
Ultimately, starting a side hustle can be an empowering way to increase your income, explore untapped potential or lay the groundwork for a future business. The most successful side hustles, however, are built not just on passion, but also on a strong legal and financial foundation. With careful planning and the right support, you can ensure your venture is built on solid ground.