Five Steps to Start a Legitimate Side Hustle

I side hustled for 8 years before leaving full-time employment. My side hustles have side hustles. And I think more people should go for it.

The legal formalities of running a business stand in the way of a lot of people, but they're truly pretty manageable. Here are five quick steps for covering the legal side of your Colorado side hustle.

1. Consider forming an LLC.

You can operate a business as a sole proprietorship -- a formal way of saying you can open up shop to sell services or products without ever taking steps to formally set up a business entity.

But forming an LLC in Colorado is quick and easy (only a $50 filing fee in Colorado), and it's in most business owners' interest to set one up. LLCs and other entities exist to protect their owners from liability -- while they don't magically stop you from being personally sued, any protection that is as quick and easy as forming an LLC is probably worth pursuing.

After you've formed an LLC, you'll need an EIN from the IRS (free and easy to obtain), and a separate bank account for your business.

2. Investigate licensing requirements.

In Colorado, license requirements for businesses are pretty light. There's no state licensing requirement for general business operations, but the state requires licenses for some types of businesses and professions. You can investigate which professions require a license in Colorado here.

Some municipalities require a general business license. You can call city hall or the county where you operate to inquire about license requirements. Or, if you need more guidance, check out your local Small Business Development Center. They're an incredible resource for entrepreneurs.

3. Make a tax plan.

When you're a W-2 employee, taxes are withheld throughout the year from your paycheck. Money you earn as a freelancer or small business owner is still subject to both income and payroll tax, but there's no one to automatically withhold taxes for you.

If you earn a profit in your business, you likely need to pay estimated quarterly taxes to avoid paying a big bill with an IRS penalty during tax time.

If you'll be selling goods, you'll also need to figure out your plan for sales tax collection and secure the sales tax licenses you'll need for your jurisdiction.

4. Think about client contracts and business policies.

If you're selling digital products or selling goods online, consider developing a Privacy Policy and Website Terms of Service.

A service-based business owner will need to think about developing contracts to use with clients.

5. Consider buying insurance for your business.

Buying insurance is probably not the world's most fun activity, but there's no question that running a business exposes you to new risks. Business insurance can help protect you against those risks. Plus, it's common for business opportunities like partnership with other businesses or jobs at particular locations to require proof of insurance.

Prices for business insurance policies vary by industry. If you're not sure where to start, you can talk to the agent who handles your personal insurance policies or ask peers in your industry for referrals to agents with an understanding of your line of work.

This post is for informational purposes, only, and is not intended to serve as a substitute for legal advice.

About the Author

Allie Moore is a Colorado attorney who helps creative-small-business-owning clients master their understanding of business law and work confidently with clients.