Should You Form an LLC for Your Side Hustle?

Should You Start an LLC for Your Side Hustle?

You’ve got a side gig that’s picking up steam—more clients, bigger paydays, and a calendar that’s suddenly bursting with tasks. It’s exciting, but those late-night worries might creep in. What if something goes wrong? What about taxes or even getting paid on time?

It’s probably time to get an LLC.

Choosing how to set up your business could make a big difference in your future and strengthen your commitment to makeing your thing work. The right structure can protect your savings, keep your paperwork simple, and let you focus on what matters: growing what you’ve started. Setting up an LLC isn’t just paperwork—it’s a move that can set you up for smoother days and fewer surprises.

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What Is an LLC and How Does It Work?

When your side work turns into real money, you might wonder how to keep things safe and simple. That’s where the LLC comes in. It’s a business setup that acts like a shield and a container for what you build. Below, you’ll find what paperwork you’ll need, and why so many choose this route as their side hustle grows.

The Basics: What Does “LLC” Mean?

LLC stands for Limited Liability Company. It’s not a corporation or a partnership. Think of it as a hybrid option that mixes the best parts of both. The “limited liability” part is key. It protects your car, savings, and personal stuff if your business hits a rough patch or faces a lawsuit. Your risk is limited to what you invest in the business.

Setting up an LLC gives your side hustle its own identity, separate from your own. It gets its own bank account. It can sign contracts. It can even open credit cards.

LLCs vs. Sole Proprietorships: What’s the Difference?

Most folks start as sole proprietors without even realizing it. If you mow lawns for cash or tutor kids after school, you’re a sole proprietor by default. There’s no extra paperwork—just you and your work.

But here’s the catch:

No protection: If things go wrong—a client slips on your porch, taxes go sideways—you’re on the hook. Your savings, car, and even your home are fair game.
Simple taxes: All business money flows straight through to your personal tax return.

With an LLC, you draw a line between your business and your life. The business stands on its own.

Paperwork and Start-Up Steps

Switching to an LLC involves more than just a handshake. You’ll need to:

Choose a unique name for your business—no duplicates allowed.
File Articles of Organization with your state (this is the main form that makes it official).
Pay a filing fee—usually between $50 and $300, depending on your state.
Appoint a registered agent (this is the person or company who gets legal and tax papers).
Create an Operating Agreement (some states require this, but it’s smart to have one either way).

You may also need to:

Apply for an EIN (Employer Identification Number) from the IRS.
Register for state and local taxes.

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How an LLC Protects You

An LLC is like a fence around your personal life. If your side gig is sued, only the business assets are in the line of fire. Your finances—your home, car, or savings—stay off-limits to creditors.

But that fence has a gate. If you mix personal money with business or act in a shady way, that protection can break down. The law calls it “piercing the corporate veil.” So it’s smart to keep clean records and run your LLC by the book. Keep the business finances totally separeate from your personal.

Key takeaway: With an LLC, you get peace of mind. You’re still the boss, but your personal life isn’t tied to every business risk or mistake. For many side hustlers, that’s the safety net that brings real freedom.

As your side hustle grows, it’s easy to get caught up in the day-to-day grind. But shaping your business into an LLC isn’t just another item to tick off a list—it brings real, lasting benefits. Here’s how an LLC helps you do just that.

Protecting Yourself From Personal Liability

When your side hustle is an LLC, it’s like parking your personal life on one side of a sturdy wall and your business on the other. If your business ever faces a lawsuit or racks up debts, your car, house, and personal savings stay separate and safe. Creditors can only go after what’s inside the business, not what’s in your private bank account.

Think of this as having a waterproof cover over your nest egg. You work hard to save money, buy a home, or stash away for retirement. An LLC keeps those hard-won assets safe from sudden storms. This safety net helps you lay your head down at night with less worry, knowing that your livelihood isn’t tied to every risk your business might face.

Looking Professional to Customers and Partners

The moment you add “LLC” after your business name, you step out of the hobby zone. You show the world you mean business. Clients and customers often feel more at ease working with a company that looks official. It signals you’re not just running a weekend pop-up—you’re a trusted, stable partner.

More trust: Customers are more likely to pay deposits or sign contracts with a real company.
Bigger opportunities: Some companies and agencies only work with registered businesses, not individuals.
Brand power: An LLC name looks better on invoices, websites, and proposals.

With an LLC, even if you’re a solo act, your brand feels bigger and more serious. That polish can open doors and lead to larger projects.

Flexible Tax Options

Taxes can feel confusing, but an LLC gives you choices in how the IRS sees your business. By default, profits flow straight to you and show up on your personal return. This is called “pass-through” taxation and helps you avoid paying tax twice on the same income.

But you’re not stuck with this setup. As your side hustle grows, you can ask the IRS to treat your LLC like a corporation (either S Corp or C Corp). This opens the door for different tax breaks and ways to pay yourself.

Some ways an LLC can help you with taxes:

Skip corporate taxes: With pass-through taxation, business profits are taxed once, not twice.
Deduct business expenses: Write off gear, supplies, and even your home office.
Choose your tax path: Elect S Corp status and, down the road, lower self-employment taxes if it makes sense.

Having these options means you can adjust as your side hustle starts booming. You get the freedom to pick the setup that fits your goals and income, without scrapping your whole business plan.

Drawbacks and Costs of Forming an LLC

Forming an LLC for your side hustle can be a smart move, but it isn’t all smooth sailing. Setting up and keeping an LLC running comes with real costs, both in dollars and in extra work. When you don’t make a ton of money from your side venture, these bumps in the road feel even bigger. It’s important to go in with your eyes wide open.

State Filing Fees and Annual Costs

Unlike a sole proprietorship, an LLC usually comes with several up-front and ongoing bills. These aren’t just one-time costs. They pop up year after year.

Most people face the following expenses when launching and maintaining an LLC:

State filing fee: This is what you pay to open your LLC. The price swings from as low as $50 in some states to $500 or more in others. Most fall in the $100–$300 range.
Annual or biennial fees: States often charge a recurring fee to keep your LLC active. This is sometimes called a franchise tax or renewal fee. Expect $50 to $800 per year. California, for example, charges a flat $800 minimum annual tax, even if your business brings in zero income.
Registered agent fees: You can be your own registered agent, but if you use a third party as your registered agent (someone who receives legal papers for you), plan on another $100–$300 per year.
Other possible costs:
- Business licenses
- Local permits
- Extra taxes (some cities have their own business taxes)

For a small side hustle, these fees can take a big chunk out of your take-home pay. If you only pocket a few thousand dollars a year, even basic LLC costs might not feel worth it.

Extra Paperwork and Rules

Running an LLC means more forms and red tape than running a sole proprietorship. Here’s what you’ll probably deal with:

Annual reports: Most states want a yearly (or every other year) update on your company’s info. Forgetting these can lead to late fees or even losing your business status.
Separate bank accounts: You’ll need a business bank account to keep your money untangled. Commingling funds can put your legal protections at risk.
Operating agreement: Some states require this to spell out how your LLC runs, even if you work alone.
Recordkeeping: Keep business transactions separate from personal ones. You’ll track more receipts and bank records for taxes and legal reasons.
Tax filings:
- Pass-through taxation means you’ll still file business profits on your personal return.
- If you choose to have your LLC taxed as an S Corp, expect new tax forms and deadlines.
Compliance notices: Watch for state notices and deadlines. Slip up and your LLC could fall out of good standing, risking penalties.

Staying on top of these tasks isn’t rocket science, but it takes attention and time. If your income from the side gig is spotty or small, the extra work might outweigh the perks. Always weigh these hidden costs against the peace of mind an LLC brings.

When Does Setting Up an LLC Make Sense?

Building a side hustle can feel like riding a bike down a hill—you start slow, but the pace picks up before you know it. Some reach a point where a simple setup is no longer enough. Others might not be there yet. Here’s how to spot the difference and see where you stand.

Signs You’re Ready for an LLC

Sometimes your side hustle grows so much that the old way of doing things doesn’t cut it. These are the moments when forming an LLC moves from “maybe later” to “do this now.”

Income Is Seriously Growing:
If you went from the occasional sale to a steady stream of money, that’s a major turning point. Maybe your part-time gig earned $300 a month last year, but now you’re clearing $1,000 or even $2,000 every month. As revenue climbs, so do the stakes.
Clients Expect Professionalism:
Let’s say a new client asks you to sign a contract or fill out a W-9. Maybe they want to pay your LLC—not you as a person. This is a clear sign they see you as a business, not a hobbyist.
Example: A freelance graphic designer lands a deal with a local business that requires invoices from a “real” company. LLC status checks that box.
Risk Becomes Real:
If your work brings new risks, think hard about protection. For example:
- You run events, workshops, or classes where someone could get hurt.
- You give advice—marketing, tax tips, nutrition, anything people rely on—and someone could claim you led them wrong.
- You sell products people use or eat. When there’s a chance things could go wrong—and you’ve got more to lose—it’s time for that LLC safety net.
Big Plans or Partnerships:
Adding a business partner? Wanting to open a business bank account? Launching a small e-commerce shop? Those are signs you’ve outgrown flying solo.

Picture this:
Anna starts as a weekend baker, selling cupcakes to friends. Before long, orders pour in on Instagram. A big wedding client asks for proof of insurance. Anna knows it’s time—an LLC helps her protect her home, look more official, and keep new clients happy.

You May Not Need One Yet If…

Not every side gig needs an LLC out of the gate. If your work is smaller scale and risk is low, keeping it simple can save time and money.

Pocket Change Projects:
You mow a few lawns, walk neighborhood dogs, or tutor math here and there. It’s $200 this month, maybe $100 next. There’s little risk of legal trouble and no big clients demanding formal contracts.
No Client Contracts or Big Paperwork:
Your clients pay cash or Venmo and don’t need receipts, invoices, or tax forms from a business entity. You mostly work with people you know.
Zero Physical or Legal Risk:
Your work is pure service with little chance of harm or upset. Painting friends’ bedrooms once a month or proofreading a friend’s blog usually won’t put your personal finances at risk.
Testing the Waters:
You’re still learning what works. The idea hasn’t taken off, and you aren’t ready to commit.
Example: You sell a digital template or homemade candles a few times a year. If things change someday, you can always form an LLC before stepping up.

Sticking with a sole proprietorship gives you freedom. When the time is right—steady income, more clients, higher risk—you can always move forward. Until then, keeping it simple lets you focus on your work, not paperwork.

Long story, short…

A side hustle should fit your life, not add worry or stress. Forming an LLC can give you a firm base—your personal assets get a layer of safety, your work looks more credible, and you open doors for the future.

Don’t rush if it’s too early. Take a careful look at your income, your risks, and your goals. The right business structure gives you confidence to reach for bigger projects, knowing you’re protected.

If your side gig is gaining speed or putting more on the line, making it official could be your next smart step. Now is the time to reflect on what fits best and plan your path forward.

Thank you for reading—share your story or questions below. Your choice matters, and there’s no one-size-fits-all answer. Take action that gives you peace of mind and room to grow.