Ep. 112 Do You Have a Hobby, Side-hustle, or Business? with Braden Drake

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Truth time: I did not get started as a virtual assistant with any intention of it becoming a full-fledged business.

 I just wanted to earn a little bit of extra cash in the evenings while my kids were in bed so that I could supplement my husband’s income.

It took a long time before I felt comfortable actually calling myself a “business owner”, because I was really treating it like a side gig for a long time. Which leads to the question - does it really matter what we call ourselves?

Licensed attorney and tax professional Braden Drake believes that it absolutely does matter what we call ourselves, for many reasons. It can affect the way we manage our taxes to the layers of legal protection we choose to our money mindset.

In this episode of The Support Squad, Braden is breaking down the basics of what service providers should know when they’re setting up the legal and tax foundations of their businesses. 

 If you’ve been totally confused about what you need to do to be legally and financially protected in your side-hustle/business/hobby, this one's for you.

Let me tell you a little bit about Braden:

Braden is a California licensed attorney and tax professional, also know as your gay best friend here to help you get your legal and tax shit legit. Braden works primarily with service based, creative small business owners through his courses where he educates on contracts, business entities, cash flow, systems and taxes.

Connect with Braden:

Website | Facebook | Instagram 

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Does it really matter what we call ourselves?

I think so. My personal opinion is that what we call ourselves has a lot to do with our money mindset, and also how seriously we take our businesses. Notice I use the word businesses. I think we should all call ourselves business owners, like we own and run a business regardless of how many hours a week you're doing that. 

 So part of this question has to do with mindset, but then the other side of it is, do those terms mean anything different when it comes to taxes and when it comes to legal obligations as well? 

Does the IRS care what we call ourselves?

The IRS doesn't care what you call yourself, they just want your money, right? They don't really care about our mindset. 

 At the end of the day, the question for them boils down to whether you have self-employment income because self-employment income is taxed differently than other income. When we have self-employment income, we have to pay income taxes and we also have to pay self-employment taxes. 

 In the eyes of the IRS, if you have any kind of a hustle, if you're selling a product, you're providing a service and you're doing that with the intent to make an income, then you have self-employment income and you need to be paying taxes on it. 

 The flip side of this is it actually makes sense for us to consider ourselves a business for tax purposes because then we get to take all of our business deductions. Some people shoot themselves in the foot because if you're just getting started and you haven’t made very much money, people will report it as “other income.” But when you report “other income”, you cannot take business deductions. The reality is for a lot of people in their first year of business, they might actually have a business loss. If you don't file as a business, then you're gonna end up paying taxes on that income when you actually could have taken a loss and not even owed tax.

Are things different from a legal perspective?

When it comes to determining whether you have a hobby or business from a legal perspective, there's two different things that we have to look at. 

 First we have to look at our legal obligations - the things that we legally have to do. Then the other side is the things that we legally should do. It’s not against the law to sign a client without a contract, but we all know that we should do it.

 As soon as you start having clients, you need to look at your liability protection. 

 For pretty much every type of business, I teach a concept that I call the layers of liability protection. It’s kind of like layers of clothing. The amount of layers is going to be very dependent on whether you personally are a warm person or a cold person, what kind of climate you live in, all these different variables. 

 The most important layers are insurance, contracts, and LLCs. I call it insurance and contracts, the essential layers of protection. 

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