how to legally cover your side hustle

How to Legally Cover Your Side Hustle In 2023

Do you have a side hustle that you’re passionate about? Are you putting in the time and effort to turn your side hustle into a successful business? If so, it’s important to legally cover your side hustle to ensure that it is operating within the bounds of the law. In this article, we will guide you through the steps you need to take to legally protect your thrilling side hustle.

The first step in legally protecting your side hustle is to determine whether it is a hobby or a business. This distinction is critical because the IRS has different tax obligations for each. It’s important to know which one you fall under to avoid penalties and legal trouble. 

If your side hustle is a business, you may be eligible for tax deductions related to startup costs and other expenses. But, if you’re unsure whether your side hustle is a hobby or business, it may be helpful to seek the opinion of a legal or tax expert.

Startup Costs

Starting a side hustle often involves some startup costs, such as purchasing equipment or marketing materials. These costs may be deductible on your taxes, even if your side hustle is not yet generating a profit. 

However, it is important to keep careful records of these expenses and consult with a tax professional to ensure that you are deducting them correctly. Types of deductible expenses may include: 

  • Business-related travel expenses 
  • Advertising and marketing costs 
  • Website and domain registration fees 
  • Equipment and supply purchases 
  • Professional development and education expenses

To legally protect your side hustle, it is often necessary to establish it as a separate legal entity. There are several options for legal structures, each with its own advantages and disadvantages. You’ll need to weigh the pros and cons to determine which one is best for you. Here are a few options:

Sole Proprietorship

This is the simplest and most common legal structure for small businesses. As a sole proprietor, you are the sole owner of the business and have complete control over its operations. However, you are also personally liable for any debts or legal issues that arise.


If you are running your side hustle with one or more partners, a partnership may be the best legal structure. In a partnership, all partners share ownership and responsibility for the business.

C Corporation

A C corporation is a separate legal entity that is owned by shareholders. It offers limited liability protection to its owners, but also requires compliance with various regulations and formalities.

Limited Liability Company (LLC)

An LLC offers limited liability protection to its owners while also being more flexible and less formal than a C corporation. It is a popular legal structure for small businesses and side hustles.

Legally Cover Your Side Hustle

Getting Insurance For Your Side Hustle

When it comes to legally protecting a side hustle, insurance is an important aspect that should not be overlooked. While some side hustles may not require insurance, others may benefit greatly from obtaining liability insurance, property insurance, or other types of coverage. 

Liability insurance can protect a side hustler from financial losses in the event of accidents, injuries, or damages caused by their business activities. For example, if a side hustler operates a food truck and accidentally causes food poisoning, liability insurance can help cover any resulting medical expenses or legal fees. 

Property insurance can protect a side hustler’s business assets, such as equipment or inventory, from damage or loss. For example, if a side hustler runs an online store and their inventory is damaged in a fire, property insurance can help cover the cost of replacing the damaged items. 

Other types of insurance may also be necessary depending on the nature of the side hustle. For example, if a side hustler offers professional services, they may need professional liability insurance to protect themselves from legal claims of negligence or malpractice.

Other Ways to Legally Cover Your Side Hustle

In addition to establishing a legal structure, there are other steps you can take to legally cover your side hustle, such as:

Registering a Trademark

If your side hustle has a unique name or logo, registering a trademark can help protect it from being used by others. It’s a smart move to invest in protecting your brand.

Obtaining Necessary Licenses and Permits

Depending on the type of side hustle you have, you may need to obtain licenses or permits from state or local governments. Failure to do so can result in penalties and legal trouble.

Maintaining Separation Between Personal and Business Finances

Maintaining separation between personal and business finances is crucial for protecting yourself from personal liability and ensuring accurate accounting. Here are a few steps you can take: 

Open a separate bank account and credit card for your side hustle, and only use them for business-related expenses. 

When signing contracts or making payments related to your side hustle, make sure to use the business name rather than your personal name. This helps maintain the separation between your personal and business finances and can protect you from personal liability. 

Plan for extra income and taxes. As a side hustler, you may be earning additional income beyond your regular job. It’s important to plan for this extra income and any additional taxes that may be owed. 

Consult with a tax professional to ensure that you are properly reporting and paying taxes on your side hustle income.

Employer Approval

If you are currently employed, it’s important to check with your employer to ensure that your side hustle does not violate any company policies or conflict with your job duties. 

Some employers may require you to obtain approval or sign a non-compete agreement before starting a side hustle. Additionally, if you plan to use any company resources or intellectual property in your side hustle, you will need to obtain permission from your employer.


Having a side hustle can be a thrilling experience, providing a valuable source of extra income and helping you develop new skills and interests. However, it’s important to legally cover your side hustle to ensure that it operates within the bounds of the law and to protect yourself from personal liability. 

By determining your side hustle’s legal status, establishing a legal structure, and taking steps to protect your intellectual property and separate your personal and business finances, you can set yourself up for success as a side hustler. 

Remember to consult with legal and tax experts for guidance along the way. In conclusion, legally protecting your side hustle is crucial for success. Take the time to research your legal obligations, seek expert advice, and take steps to legally cover your side hustle. With the right legal and financial structures in place, you can turn your side hustle into a thriving business and achieve your goals. Good luck!

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