Why Everyone Should Have a Side Business (Even If It Only Makes $500 a Year)

Photo by M. Cooper on Unsplash

You’re in your forties or your fifties. You’ve got a stable W-2 job. Health insurance. Maybe a 401(k) you’ve finally started contributing to seriously. You’re not looking to quit your job, start a unicorn tech company, or become an “entrepreneur.” You’ve seen enough hustle-culture nonsense to last a lifetime.

So why don’t you have a side business?

A side business isn’t about becoming the next big thing. It’s about having something running quietly in the background—something that serves you whether you ever go full-time or not. Something that opens doors your W-2 job simply can’t open. And something that might just save you someday.

Let’s start with the financial advantages, because this is where most people’s eyes glaze over when they hear “side business”—they assume it’s about the income. It’s not. Or rather, it’s not just about the income.

With even a small amount of self-employment income—we’re talking a few thousand dollars a year—you unlock a set of financial tools that are completely unavailable to you as a W-2 employee. Take the SEP-IRA, for example. This is a retirement account specifically for people with self-employment income. For 2026, you can contribute up to 25% of your net self-employment earnings, to a maximum of $72,000. You’re not going to hit that ceiling with a hobby business, but that’s not the point. Even $5,000 in side income lets you put away $1,250 in a SEP-IRA—separate from whatever you’re contributing to your employer’s 401(k). It’s another tax-advantaged bucket you didn’t have access to before.

Then there are deductions. Things you might already be spending money on—a portion of your home used as an office, supplies for your hobby, mileage to meet a client, that conference you attended—become legitimate business expenses. The simplified home office deduction lets you take $5 per square foot for up to 300 square feet of dedicated office space. That’s $1,500 off your taxable income right there, with minimal record-keeping. The 2026 IRS mileage rate is 72.5 cents per mile for business use. Drive 500 miles for your side business over the course of the year? That’s $362.50 in deductions.

Here’s an example that brings this together. Let’s say you’re 51, married, with a household income around $85,000. You start doing some basic copywriting and editing on the side for local small businesses—a friend’s restaurant needs help with their website, a neighbor’s accounting practice wants a brochure cleaned up. You make $4,000 over the course of the year. After self-employment taxes (about 15.3% of your net income), you’re looking at roughly $612 in additional taxes on that income if you did nothing else.

But you’re not doing nothing else. You use a spare bedroom as your home office (150 square feet, $750 deduction). You drive to meet clients a handful of times (200 miles, $145 deduction). You buy a new laptop for $600 that you use 60% for the business ($360 deduction). And you contribute $1,000 to a SEP-IRA. Suddenly your $4,000 in gross income has $2,255 in deductions against it—and the SEP contribution reduces your taxable income by another $1,000. Your net taxable self-employment income is now around $745. The self-employment tax on that? About $114. And you’ve put $1,000 toward retirement that you couldn’t have put anywhere else.

Compare that to just depositing $4,000 in extra cash into your checking account and paying taxes on the whole thing. The side business didn’t just reduce your tax bill—it gave you a new retirement savings vehicle and helped you think more intentionally about what you spend.

And there’s one more financial advantage worth mentioning, especially for parents: if you have kids who help with your business - genuinely help, with real tasks – and you are a sole proprietorship, single member LLC, or a parent-only partnership you can pay them a reasonable wage. That wage is a deduction for your business. And your child now has earned income, which means they can contribute to a Roth IRA. For 2026, the contribution limit is $7,500 or the child’s earned income, whichever is less. If your 16-year-old earns $3,000 helping you pack Etsy orders or update your social media, they can put that $3,000 into a Roth IRA. Let it grow for 50 years and that single contribution could be worth over $100,000 in retirement—tax-free. You’ve turned a deductible business expense into generational wealth-building.

But finances are only part of the story. The second reason to have a side business is insurance. Career insurance.

Jobs are fluid now. People change positions every few years, sometimes by choice, sometimes not. And if you’re in your 50s, the landscape looks different than it did when you started. You’ve probably seen friends or colleagues get laid off, restructured, or pushed out. It happens.

Here’s what I’ve noticed after years of watching people navigate this: the worst time to start a side business is right after you lose your job. You have no track record, no reputation, no portfolio of work. You’re starting from scratch while also being financially stressed and emotionally rattled. There’s a desperation that comes through, even when you try to hide it. Potential clients can sense it.

Now compare that to someone who’s been running a small consultancy or service business on the side for three years. They’ve done a dozen projects. They have testimonials, referrals, a LinkedIn profile that shows consistent work. When they get laid off, they don’t say “I guess I’ll try consulting.” They say, “I’ve been doing this on the side for years—now I’m taking it full-time.” That’s a completely different energy. That’s someone with options.

Think about it like eBay seller ratings. If you’ve been selling occasionally for five years, you’ve built up reviews, established trustworthiness. When you pivot to selling more inventory, buyers already trust you. Starting from zero means months of proving yourself before anyone takes you seriously. The same principle applies to your professional reputation.

This isn’t just about layoffs, either. Maybe a parent gets sick and you need flexibility. Maybe you want to relocate and your employer doesn’t have an office there. Maybe you just want the option to work differently at 58 than you did at 38. Having a side business—even one that barely makes money—means you’re not starting from zero when life changes. You’ve already built the foundation.

The third benefit is harder to quantify, but people who’ve experienced it know exactly what I mean: having a stake in something you built changes how you feel about your work.

There’s a pride of ownership that comes from running your own thing, even a tiny thing. You’re not just exchanging hours for dollars—you’re creating something, making decisions, seeing the results of your choices. For a lot of people in their 40s and 50s, this is energizing in a way their day job stopped being years ago. Ironically, it often makes them better at their day job too. They bring new energy, fresh perspective. The side business becomes a creative outlet that keeps burnout at bay.

And on a resume or LinkedIn profile, “five years running a part-time consulting practice” reads very differently than “exploring opportunities.” It signals initiative, expertise, follow-through. Even if you never want to go full-time, it shapes how people perceive you.

Now, some people will read this and think: that’s nice, but I’m already doing something on the side and it’s just cash. I do some woodworking for friends, or I sell stuff on Facebook Marketplace, or I do some tutoring. It’s not a real business.

This is where we need to talk about the “under the table” problem.

There are two versions of this. The first is not reporting the income at all. The second—and this is where people really get themselves in trouble—is not reporting the income but still claiming personal expenses as deductions. Both are risky. You’re required to report taxable income whether or not you receive a tax form—and payment platforms may issue forms depending on volume and rules that change over time.

The bigger issue isn’t enforcement. It’s that under-the-table income blocks you from accessing all the benefits a legitimate business provides.

But here’s the bigger issue: by keeping things under the table, you’re giving up all the benefits we just talked about. You can’t open a SEP-IRA because you don’t have documented self-employment income. You can’t pay your teenager a legitimate wage so they can open a Roth IRA. You can’t build a documented track record that could save you in a job transition. You’re protecting yourself from a modest tax bill by abandoning thousands of dollars in long-term benefits.

Making it legitimate doesn’t have to mean paying a ton more in taxes. For many people, the deductions available to a legitimate business offset most—sometimes all—of the additional tax liability. And you gain access to tools that simply don’t exist for under-the-table work.

One thing to keep in mind: the IRS has what’s called the hobby loss rule. Generally, if your activity shows a profit in at least three out of five years, the IRS presumes it’s being run for profit. If you don’t meet that test, it doesn’t automatically fail—but it does mean you need good records and a clear profit motive. This doesn’t mean you need to be wildly profitable. It means you need to run it like a real business: keep records, track expenses, make genuine efforts to earn revenue, and be able to demonstrate a profit motive. A few hundred dollars of profit in three out of five years is enough. You just can’t claim years of losses to offset your W-2 income and expect no questions.

So what actually counts as a “side business”?

This is where people get hung up. They hear “business” and think complicated: LLCs, business plans, investors. It doesn’t have to be that.

A side business is anything where you provide goods or services in exchange for money, with the intention of making a profit. That’s it. Examples include: editing or copywriting for local businesses, graphic design for friends and referrals, crafts sold on Etsy or at local shops, consulting in your area of expertise, tutoring or coaching, administrative support for other consultants, social media management, photography for events, reselling items online.

It doesn’t even have to be skills-based. Maybe you’re good at finding undervalued items at estate sales and reselling them. Maybe you raise chickens and sell eggs to neighbors. Maybe you teach a weekly yoga class at the community center. These all count.

The minimum viable version looks like this: one or two gigs a year, a handful of sales, enough activity to keep you “in play” and test your systems—tracking expenses, basic bookkeeping, maybe a simple website. The point isn’t scale. It’s having something set up that could scale if you needed it to.

Let me tell you about a few people I’ve seen do this well.

There’s a woman—let’s call her Diane—who was worried about funding her kids’ college. She’d always been good at editing and had helped friends clean up their marketing materials. She started doing it more formally: a website, a simple rate sheet, a few testimonials from early clients. Within a year she had a steady trickle of local small businesses hiring her for website copy, brochures, email campaigns. She wasn’t getting rich, but she was earning an extra $6,000-8,000 a year—earmarked entirely for college savings. She opened a 529 plan and fed it directly from her side business. That was the whole point. She never had to touch her household budget.

There’s a guy—call him Marcus—who started doing basic admin work for a consultant he knew. Scheduling calls, organizing files, nothing fancy. He picked up a couple more clients through referrals. Over time he started learning more, asking questions, taking on larger projects. Three years later, when his company went through layoffs, he had a client roster and a track record. He went full-time as a consultant himself within two months. His former colleagues who got laid off the same day were still updating their resumes.

And there’s someone who turned a hobby into a tax-deductible passion. She made small jewelry pieces for family, started selling a few at a local artisan market, then opened an Etsy shop. The income is modest—maybe $2,000 a year—but her supplies are now deductible. The booth fees are deductible. A portion of the craft room is a home office. Her hobby didn’t just become something that pays for itself. It became a legitimate business that reduces her overall tax burden.

Here’s the thing nobody tells you when you’re a W-2 employee: your financial options are limited by design. You get the retirement accounts your employer offers. You get the benefits they choose to provide. Your income is straightforward: you earn it, you pay taxes on it, what’s left is yours.

A side business—even a tiny one—cracks open a different set of doors. Doors you didn’t know existed. And once they’re open, they stay open.

So where does this leave you?

If you already have a side business, even an informal one, ask yourself: are you treating it like a business? Are you tracking expenses, documenting income, taking the deductions you’re entitled to? Have you looked into a SEP-IRA? If your kids help out, are you paying them in a way that lets them open a Roth IRA? Or is it just extra cash sitting in your checking account, doing nothing for your future?

If you don’t have a side business yet, start thinking about what it might look like. This doesn’t have to be a grand plan. Start with what you enjoy. What do people already ask you for help with? What would you do more of if someone paid you? Hobbies are often the best starting point—you understand the market, you know what’s valuable, you’re already spending time there anyway. The first sale is usually someone who already knows your value: an old employer, a friend’s business, someone in your network. It doesn’t hurt to ask.

And if you’re doing gig work or under-the-table work—driving for a rideshare company, selling crafts on the side, helping people with odd jobs—you’re running a business whether you realize it or not. The question is whether you’re capturing the benefits or leaving them on the table.