Many Americans are part of a microbusiness, even if they don’t know it. The COVID-19 pandemic has caused record job losses, leading to more people embracing the gig economy for additional income to offset their costs.
The problem is that those who are operating microbusinesses may not know how to claim microbusiness income during tax season — or that they need to do so at all. Do you have a side hustle driving for Uber, or are you part of a multilevel marketing opportunity selling wellness products?
These are both considered microbusinesses, and could end up causing you to misrepresent your earnings if you aren’t careful. This guide will walk you through everything you need to know about operating a microbusiness to help you keep those hiccups to a minimum.
What Is a Microbusiness?
If you’re an independent contractor, from a real estate agent to running an Etsy store, you own a microbusiness and need to be tracking your income and taxes accordingly. If you’re interested in going this route, make sure you understand the pros and cons before you do.
Pros of Owning a Microbusiness
Many people would love to be able to work on their own terms and schedule, or to take on the clients and team members they want instead of being told who they have to work with.
That especially appeals to those juggling childcare or caring for family members. A microbusiness offers the flexibility to work on your own schedule and indulge in your inner night owl, and may even mean you are able to work from anywhere or travel while still getting things done.
Running a microbusiness generally doesn’t cost a lot to start. You may have equipment or inventory expenses if your microbusiness is photography or a retail-from-home venture, but you’re not paying additional rent or utilities. Filing paperwork to get started doesn’t cost much in most states, either, ranging from averaging around $300.
Bonus: If you’re operating a solo venture, you don’t have to pay anyone’s salary.
Owning a microbusiness offers the promise of being in control of your fate. This is appealing for anyone who’s been frustrated by corporate life restrictions. It’s tantalizing to think of working with less red tape, fewer levels of approval, and fewer meetings at 4 p.m. on Friday.
Being your own boss is the American dream, right? There’s a real satisfaction to doing work you love for yourself instead of for someone else, likely someone else you’ve never met. Creative professionals have the added benefit of only taking on the projects that satisfy them the most.
Cons of Owning a Microbusiness
It costs money to start a business, even if there are no payroll or rent expenses. Those costs may include incorporation fees, other legal fees, equipment, or inventory, which may eat into your savings or cause you to go into debt. You may have cash flow issues, depending on the nature of the business and the clients or market you serve.
Make sure that you always understand your financial position and what risks are acceptable to take. If you have a financial planner or investment advisor, make sure they are always looped into what’s going on with your business.
As a business owner, it’s all on you. The success or failure of your business and the way you manage your money is all your responsibility. If a mistake is made, a deadline gets missed, or a piece of vital equipment goes on the fritz, you’re the only person who can address it. Some people thrive on that challenge, but it’s too much to manage for many. Be aware of the stress that owning your own business can cause and skills for coping with that pressure.
All that said, many people see the pros of owning a microbusiness as greatly outweighing the challenges — and you can definitely start your business in a way that helps minimize them.
3 Ways to Start a Microbusiness
1. Set Up an Accounting System First
2. Rely on Professional Advice
Don’t try to answer legal or business tax questions you may have by using internet research. Investing in professional advice you can trust now will help your business run better and pay off down the road. Not sure if you should start an LLC or how to file taxes as an LLC? Ask a business tax attorney, not your Facebook friends.
3. Understand It’s an Investment
Ask an Expert Before Starting a Microbusiness
Becoming a business owner isn’t for the faint of heart. Although it can be incredibly fulfilling, it’s also a complex adventure on which to embark. Trust the professionals at Silver Tax Group to answer all your questions about forming a microbusiness and how it affects your business taxes and overall financial picture. Our business consulting experts would be happy to help address your microbusiness questions today.