Many of us ask that question because we need a stable paycheck until our side hustle can replace it.
The good news is yes, you can form an LLC while having another job in all U.S. states. But before you get too excited, there are some legal questions that you’ll need to answer such as:
Did you sign an employment contract, non-disclosure, or non-compete agreement?
There are also moral dilemmas to navigate like should tell your boss, when to tell them, and what to say?
Now you’ve got another question: How to form an LLC while having another job?
In this post, we’ll look at your options.
Most entrepreneurs in your position (including me) have questions and concerns when turning their side-hustles into an LLC.
You might be wondering:
All important questions and we’ll answer them. But first, let’s look at the advantages of forming an LLC.
Most people need a financial safety net while turning their entrepreneurial dream into a reality. Your day job is that safety net, but it does more than pay bills. Your weekly wage often funds your side-hustle’s start-up costs or helps you get a small business loan.
Having a day job empowers you to validate your business idea, test products, improve services, identify your target audience, and experiment with different marketing strategies.
Your current job might be why you want to create your business; that job is your inspiration and security blanket rolled into one, and you should use it to help start your new business.
When your employer hired you, they probably asked you to read their company policy and sign an employment contract.
If so, you need to review it to ensure you don’t violate your contract and leave yourself vulnerable to dismissal or lawsuits by forming an LLC.
For example, your employment contract could include some of the following employer restrictions:
Your employer’s company policy is not something to ignore. Ensure you read the fine print and confirm that you won’t infringe upon it by forming an LLC.
Your primary goals are to avoid a conflict of interests, honor your contract obligations, and not risk losing your job. Consider consulting with an attorney before you form your LLC if you’re unsure.
It might sound counterintuitive to tell your employer that you plan to leave them and form your own business, and you might be tempted to say nothing!
Let’s say you don’t tell them and they find out, now there’s a breakdown in trust. Your employer might doubt your loyalty, leading to concerns about using company resources or time to grow your side-hustle.
Your boss might also question your performance at work, and if you can continue to fulfill the role they hired you for, that could be reason enough for your dismissal!
Honesty is, of course, the best policy, but whether you tell your employer often depends on 2 things:
Some employers are result-driven entrepreneurs like you and will understand your desire to go it alone and start your own business.
Others are not quite so liberal and might resent you for your entrepreneurialism and innovative spirit. So, before telling your boss, figure out which side of the fence they fall.
What to say:
When you tell your employer about your plans, they’ll have some questions.
Answer honestly but only tell them to the point of necessity. After all, your employer and co-workers don’t need to know every detail about your new business. Only disclose the areas that could violate your contract as often it’s best to keep your private business your own.
The good news is you can pay tax as an LLC owner while working full-time employment.
Your employer prepares and files a W-2 wage/tax statement showing your year’s income as an employee.
You’ll make a 50% payroll tax contribution from your paycheck towards your Medicare and Social Security; your employer makes the other 50%.
Your employer automatically withholds and pays your payroll taxes to the IRS for any income you earn, reporting it along with any income tax on the W-2 form.
When you run an LLC, you’re required to make quarterly estimated income tax payments on your total profits and payroll taxes (Medicare and insurance) on a percentage of your earnings to the IRS.
As a single-member LLC owner, you’ll prepare and file your income tax return using the IRS Schedule C form 1040. Unless you choose to run your LLC as a corporation, in that case, the LLC files a separate return and pays corporation tax.
If you’re still unsure, talk with a CPA/accountant/tax advisor before forming your LLC, or read our post on how to pay yourself in an LLC.
When forming your LLC, there are some steps you can take that won’t affect your current employment. And the more you do while in your job, the better prepared you’ll be to start a successful full-time business.
Here are some things you’ll need when going from employee to self-employed LLC owner:
An employer’s identification number (EIN) is a Social Security number for your business, which the IRS uses to track your tax payments. You can apply to the IRS to get your EIN or use our convenient EIN application service here at Tailor Brands.
Once you have your EIN, you can apply for a business bank account. And it’s recommended you do it for several reasons.
A business account helps simplify your tax returns by not blending your business and private banking, reducing your accountancy costs, and avoiding piercing the corporate veil.
You’ll have to designate a registered agent when you file your articles of organization with your state.
A registered agent must be over 18, with a registered address in your business’s home state, and doing regular business hours to receive official mail on behalf of your LLC.
You don’t have to worry when applying for any of the above or providing your private information as none relate to your employment.
You now know you can form an LLC while having another job, which is excellent news.
But first, you’ve got to check your current company policies and employment contract to ensure everything is legit. When you have the green light, it’s time to put your foot on the gas and form your LLC.
You won’t look back once you do!
This portion of our website is for informational purposes only. Tailor Brands is not a law firm, and none of the information on this website constitutes or is intended to convey legal advice. All statements, opinions, recommendations, and conclusions are solely the expression of the author and provided on an as-is basis. Accordingly, Tailor Brands is not responsible for the information and/or its accuracy or completeness.
Terry is a serial entrepreneur with over 25 years of experience building businesses across multiple industries – construction, real estate, e-commerce, hotelier, and now digital media. When not working, Terry likes to kick back and relax with family, explore Taoism’s mysteries, or savor the taste of fine Italian red wine.