Do I have a business or a revenue stream?
Many people earn their living from a variety of sources, including combining traditional and self-employment. Sometimes it could be as simple as owning a rental property while being employed by someone else. Or, some people have multiple LLCs and varying revenue streams under each LLC.
In my last blog, we talked about how to take your “side hustle” full-time, and this month, I want to discuss how to know if your income is a revenue stream or a separate business. This determination does not always have a hard and fast answer, but here are a few guidelines to go by.
What is your overall employment situation?
If you are traditionally employed, you might have a side hustle. As a traditional employee, you can’t count anything you do outside of that as a “revenue stream.” That means that whatever money you make doing something outside your employment should be considered a separate business with its own bank account. You can still operate as a sole proprietorship, but there could be considerations with your employer and other legal reasons to incorporate. Ask your tax preparer, and possibly your attorney, about your specific circumstances.
What is the activity?
If you are using a Schedule C for your Form 1040, or you know you have a business with several different income sources, it can be a little bit confusing. That’s where you need to consider the actual activities involved.
For example, I have a friend who owns a writing business. She writes for clients, but also teaches workshops about writing and does consulting work about writing. All three of those activities are related to writing and are different revenue streams under one business. She also is a member of a direct sales company that sells hair accessories. That is a completely separate business with separate accounts and brand identities.
Let’s look at a few other examples to differentiate between revenue streams under one business or a separate business. If you are a hair stylist, massage therapist, etc., and you sell shampoo or lotions to your clients, that is a revenue stream under your beauty/healthcare business. What you sell are products related to your main business.
On the other hand, if you are an occupational therapist who sells crafts you make at local vendor fairs or sells something like Mary Kay, those are separate businesses.
Some situations, such as if you are in both real estate sales and property management, can be a little tricky and you should consult an attorney and your tax preparer.
Confused? Let me help
Sometimes the difference between a new revenue stream in an existing business and a whole new business is clear, but many times it is not. Especially when passions and skills overlap. I can help you examine your finances and make sure your books are in order so that you and your tax preparer can make the best decisions regarding how to divide your income streams. Email me to get started!