Not every job pays all the bills. And not every full-time job leads to emotional fulfillment. That means that employees will be eyeing other opportunities, and in some cases working those jobs concurrently with full-time employment. These days more people than ever have some sort of gig on the side, and whether that side business is profitable or not could mean a huge difference come tax time.
So how can employees make sure their side business is legal? And how can employers deal with the side businesses of their staff?
When the Moonlighting Hits Your Eye
You might feel a little betrayed if you find out one of your employees has been working at another job. Was she not making enough money? Did she not feel challenged at work or see a direct career path? Whatever the case may be, if your first inclination is to fire a moonlighting employee, you might want to be careful.
Make sure the side gig isn't already addressed with a non-compete clause or a nondisclosure agreement. And if your company has a policy on moonlighting making sure you adhere to that policy is just as important as ensuring the employee did.
Sideways and Means
If it's you that's doing the moonlighting, you should also be aware of any contractual obligations or restrictions before striking out on the side. And ensure that there are no ethical conflicts with your side gig. Most importantly, be aware of the tax implications.
The IRS taxes all income, regardless of whether it's your main source or a side business. That might be easy enough to remember if you're making money, but what if your side project is a net loss? Then things can get a little tricky. The IRS allows deductions for the loss money from your other income as long as the activity is considered a legitimate business. If your side gig is only a hobby, no deduction for you.
The IRS will generally look at a few factors to distinguish between legitimate business and hobby, mainly whether you have a name for your business and a business structure, whether you invest in advertising or marketing for the purpose of making money, and whether you keep financial records and have a bank account for your business.
Before striking out on your own side business, or striking an employee from the payroll for starting theirs, you might want to talk to an experienced employment attorney.
- Browse Employment Lawyers by Location (FindLaw's Lawyer Directory)
- Noncompete Clauses Are Everywhere, but Does Your Business Need Them? (FindLaw's Free Enterprise)
- Can Your Former Job Sue You for Starting Your Startup? (FindLaw's Free Enterprise)
- Does Your Startup Idea Violate Your Contract? (FindLaw's Free Enterprise)