Maybe you’ve been selling homemade cookies for years and want to make a career out of it. Maybe you’ve had a lifelong passion for graphic design and finally want to give freelancing a real shot. Whatever the reason, many people want to know how to turn their side hustle into a legitimate business. If this is you, there is a whole list of technical and bureaucratic hurdles ahead. But hopefully this article can help give you some guidance.

Pick a Business Type

Now that you have decided to turn your side hustle into a legitimate business, you must communicate your intent to the government and the rest of the world. To do this, you must instruct the government to treat your business’s revenue as a business.

Unless you have already hired multiple employees and built infrastructure, it is best to establish a sole proprietorship or a limited liability corporation (LLC). As a sole proprietor, you only need to file a tax ID and appropriate licenses and permits. You become an unincorporated business with one owner who pays income tax on the profits.

As an LLC, you would have to register with your state. There are some advantages to forming an LLC, including:

• Other people can own shares in the company
• Liability protection
• Tax advantages

Pay Your Taxes

Though it varies from state to state, in all cases you must claim your business’s losses and income on Schedule C of the federal tax return. Even with very little money going into the business, you can save capital by deducting expenses, like mileage, cell phone use, or other travel costs.

Create a Business Account

One of the most important rules in how to turn your side hustle into a legitimate business is that every wholehearted business endeavor needs its own bank account. You do not want to mix your personal funds with your new, professional funds.

Mark Your Packages

This piece of advice is most applicable to businesses that create products and their packaging. If you want your packages in stores, they will need to be traceable back to you and your warehouse. To accomplish this, you will have to attach lot numbers onto all your packages.

A lot number is a number given to a grouping, or a batch, of product units so the whole group can be traced back to its source in the event of a recall. It is up to you how you will determine the numbers, but adding lot numbers to your packages is an essential part of the packaging world.