![Should You Set Up an LLC for Your Online Business? [LNIM219]](jpg/depositphotos_235441098_xl-2015-1080x675.jpg)
Hook
Should you form an LLC for your online side hustle? Everyone has an opinion, but most of the advice floating around is either oversimplified or flat-out wrong. In this episode, I cut through the legal mumbo-jumbo and talk about what actually matters for solo online entrepreneurs considering an LLC.
What You'll Learn
- What an LLC actually protects you from (and what it does not)
- The truth about LLCs and taxes for solopreneurs
- When an LLC becomes practically necessary for your online business
- The costs and paperwork involved in forming and maintaining an LLC
- The 20% pass-through deduction and how it might benefit you
Episode Summary
I tackle one of the most common questions I get from part-time online entrepreneurs: should you form a Limited Liability Corporation? I approach this from a practical business owner's perspective rather than a legal one.
The two main reasons people consider an LLC are liability protection and tax benefits. I break down why neither is as straightforward as most people think. An LLC does not create a magic shield around your personal assets. If you personally do something negligent, you will still be named in a lawsuit regardless of your business structure. And for single-member LLCs, the IRS treats your business as a disregarded entity, meaning your income is taxed the same as a sole proprietorship.
That said, there are real practical benefits. Some platforms (like Walmart Marketplace) require you to be an actual corporation to sell on their platform. Having an LLC signals to business partners that you are serious. And there are potential tax advantages like the 20% qualified business income deduction that you should discuss with your tax professional.
I also cover the costs involved, which vary significantly by state, including formation fees, annual franchise fees, and potential state income tax implications.
Key Takeaways
- An LLC does not make you lawsuit-proof. If you are personally negligent (like defaming someone in a blog post), you get sued personally regardless of your business structure.
- Single-member LLCs are tax-neutral by default. The IRS treats them as disregarded entities. You do not automatically pay less in taxes just by forming an LLC.
- Costs vary by state and can be significant. Formation fees, annual franchise fees, and state income taxes all add up. Know your costs before you file.
- Some business opportunities require an LLC. Certain platforms and business partners will only work with incorporated entities.
- The QBI deduction is worth exploring. Under certain conditions, you may be able to deduct 20% of your net business income. Talk to your tax professional about whether you qualify.
What's Changed Since This Episode Aired
- The Corporate Transparency Act (2024): New federal reporting requirements now apply to most LLCs. You must file a Beneficial Ownership Information (BOI) report with FinCEN. This is a new compliance requirement that did not exist when this episode originally aired.
- State filing fees have generally increased. California, for example, has updated its franchise tax structure. Check your specific state's current requirements.
- More platforms now require business entities. Beyond Walmart, several advertising platforms and B2B marketplaces now prefer or require incorporated sellers.
Resources
- SBA Guide to Business Structures — Compare LLCs, sole proprietorships, and corporations
- IRS LLC Tax Information — Official IRS guidance on how LLCs are taxed
- FinCEN BOI Reporting — New beneficial ownership reporting requirements
- Subscribe to Late Night Internet Marketing
Related Episodes
Start Building Your Online Business
Whether you form an LLC or not, the most important thing is to start. If you are ready to build an internet business one night at a time, subscribe to the Late Night Internet Marketing podcast on Apple Podcasts or Spotify. Leave a review if the show has helped you — it makes a huge difference.
