For many Americans, side hustles are a lifeline. Whether it’s delivering groceries on weekends, selling handmade jewelry on Etsy, or offering tutoring sessions during the school year, part-time gigs are no longer just pocket change—they’re vital for paying bills or saving for future goals. But with the rise in income from side work, even at low levels, comes a nagging question: Should I form an LLC?
This isn’t just a tax question—it’s about liability, credibility, and how serious you want to take your entrepreneurial efforts. For some, forming an LLC (Limited Liability Company) is a smart, strategic move. For others, it’s overkill.
Contents
- What Exactly Is a Side Hustle?
- What an LLC Does—and Doesn’t Do
- When an LLC Might Be Worth It for a Low-Income or Seasonal Gig
- When You Might Not Need an LLC (Yet)
- How Much Does It Cost to Form an LLC?
- How to Form an LLC for Your Side Hustle
- Real-Life Examples of Side Hustlers Who Benefited from an LLC
- Think Long-Term, Not Just Bottom Line
What Exactly Is a Side Hustle?
Before talking about LLCs, let’s clarify what qualifies as a “side hustle.” At its core, a side hustle is any income-generating activity outside of your regular job. It might be:
- Driving for Uber or Lyft
- Selling baked goods at local markets during the holidays
- Flipping garage sale finds on eBay
- Doing yard work or snow shoveling in your neighborhood
- Providing freelance services like writing, design, or editing
Some of these earn a few hundred dollars a year; others can quietly grow into multi-thousand-dollar annual streams. Regardless of size, they have one thing in common: they carry legal and financial implications.
What an LLC Does—and Doesn’t Do
What an LLC Provides:
- Limited liability protection – Keeps your personal assets (like your car or house) safer if your business gets sued.
- Professional appearance – Clients may take you more seriously if you operate under a business entity.
- Separation of personal and business finances – You can open a dedicated bank account and keep things clean for taxes.
- Tax flexibility – You can choose how your business is taxed, often as a sole proprietorship by default but with options to elect S-corp status later.
What an LLC Won’t Do:
- It won’t magically reduce your taxes. You still owe self-employment tax and income tax.
- It won’t protect you if you mix personal and business finances. Courts call that “piercing the corporate veil.”
- It doesn’t mean you’re automatically insured. You’ll still need business insurance in many cases.
So, while an LLC can be powerful, it’s not a golden ticket. It’s a tool—and like any tool, it should match the job.
When an LLC Might Be Worth It for a Low-Income or Seasonal Gig
1. You’re in a high-risk field
Are you offering personal training sessions at home? Selling food? Driving clients? Any gig that carries a risk of injury, property damage, or claims of negligence puts you on the radar for potential lawsuits. An LLC provides a buffer zone between your assets and your business activities.
2. You work with clients or contracts
If your side hustle involves delivering services to others—like tutoring, freelance work, consulting—an LLC can boost your perceived legitimacy and help secure better gigs. It also formalizes your working relationships and gives you a business name to sign contracts under.
3. You’re making consistent income (even if it’s small)
If you’re earning $500 or more each month from your hustle, consider the benefits of formalizing it. Even at low levels, if you plan to scale, having an LLC early can prevent hassle later. You’ll be ready for growth, and you’ll already have the infrastructure in place (bank account, EIN, etc.).
4. You want to separate your finances
Mixing personal and business expenses is one of the fastest ways to get into IRS trouble or mess up your finances. An LLC forces a level of discipline that keeps your books clean and makes tax season far less stressful.
5. You want to protect a brand name
If you’ve created a logo, a social media handle, or a product line under a unique name, forming an LLC helps you own that name within your state. It doesn’t replace a trademark, but it can give you some first-claim rights.
When You Might Not Need an LLC (Yet)
1. Your hustle is very low-income or infrequent
If you sell ten scarves a year at a holiday fair or occasionally babysit for neighbors, the paperwork and filing fees may outweigh the benefits of forming an LLC—at least for now.
2. You’re testing an idea
When you’re experimenting—trying out drop shipping or offering a new service—there’s no rush. You can start as a sole proprietor and shift to an LLC if and when things become consistent or profitable.
3. You’re not ready for the added responsibility
Even though LLCs are simple compared to corporations, they still come with rules: filing an annual report, keeping clean records, maintaining a separate bank account. If you know you’re not going to keep up, it may be best to wait.
How Much Does It Cost to Form an LLC?
This depends on your state. Some charge as little as $50; others exceed $300 just for the initial filing. Here’s a quick snapshot of what you may pay:
- Filing fee: Typically $50–$300, depending on state
- Annual report fee: $0–$150 annually in most states
- Registered agent (if needed): $100–$300 annually
That said, many side hustlers consider it money well spent for peace of mind, especially if they earn a few thousand dollars a year or more.
How to Form an LLC for Your Side Hustle
If you decide forming an LLC makes sense for your situation, the process isn’t overly complicated. Here’s a general outline:
- Pick a unique business name
- Choose your state of formation (usually your home state)
- File Articles of Organization through your state’s Secretary of State office
- Pay the required fee
- Designate a registered agent (can be you, a service, or another person)
- Get an EIN (Employer Identification Number) from the IRS—it’s free
- Open a business bank account
- Create an Operating Agreement (optional but recommended)
That’s it. You don’t need a lawyer (though one can help), and there are many affordable online services that handle the paperwork for you.
Real-Life Examples of Side Hustlers Who Benefited from an LLC
Maya the Etsy Jewelry Seller
Maya made about $4,000 last year selling handmade earrings. One customer claimed a pair caused a rash and threatened legal action. Because Maya had an LLC and business insurance, her personal finances were protected.
Trevor the Snow Shoveler
Each winter, Trevor makes $2,000 clearing driveways. He formed an LLC mostly to separate his money and open a business bank account. The LLC also made it easier to get liability insurance in case someone slipped on an icy path he missed.
Jen the Freelance Proofreader
Jen wanted to land clients on Upwork and Fiverr but also build a direct client base. She formed an LLC to create a professional brand name and later used it to open a business credit card, which helped fund her laptop upgrade.
Think Long-Term, Not Just Bottom Line
Forming an LLC for your side hustle isn’t about impressing the IRS or showing off. It’s about protecting your future self. If your hustle is just a now-and-then thing with pocket-change earnings, a formal structure might not be necessary. But if there’s potential for growth, customer interactions, or any risk—however small—it could be one of the smartest business moves you make.
And remember, forming an LLC doesn’t lock you into a high-maintenance legal maze. In most states, it’s a low-effort process with high potential upside. Whether you’re side hustling out of passion, necessity, or curiosity, think of your LLC as a safety net—one that might catch you when you least expect it.
