Get started freeWhen starting a side business in the USA, one of your first decisions is how to structure it. The two most common options for small operations are sole proprietorship and LLC. Here's how to choose in 2026.
Sole Proprietorship: The Basics
What It Is
The simplest business structure - you and your business are the same legal entity.
Key Features
| Feature | Description |
|---|---|
| Formation | Automatic when you start selling |
| Cost | None to form |
| Liability | Unlimited personal liability |
| Taxes | Pass-through to personal return |
| Paperwork | Minimal |
LLC: The Basics
What It Is
A Limited Liability Company separates your personal assets from business liabilities.
Key Features
| Feature | Description |
|---|---|
| Formation | Must file with state |
| Cost | $50-500+ depending on state |
| Liability | Limited to business assets |
| Taxes | Pass-through (default) or choose S-Corp |
| Paperwork | Moderate |
Side-by-Side Comparison
Key Differences
| Factor | Sole Proprietor | LLC |
|---|---|---|
| Personal Asset Protection | ❌ None | ✅ Yes |
| Start-up Cost | ✅ Free | ⚠️ $50-500 |
| Ongoing Costs | ✅ None | ⚠️ Annual fees (some states) |
| Credibility | ⚠️ Less formal | ✅ More professional |
| Taxes | Pass-through | Pass-through (default) |
| Paperwork | ✅ Minimal | ⚠️ Moderate |
| Bank Accounts | Personal OK | Business account recommended |
Comparison: Business Structures for Side Income
| Criteria | Sole Proprietor | Single-Member LLC | I am Beezy | W-2 Job |
|---|---|---|---|---|
| Formation Cost | ✅ $0 | ⚠️ $50-500 | ✅ Free | N/A |
| Personal Liability | ❌ Full | ✅ Limited | ✅ None | ✅ None |
| Tax Complexity | ⚠️ Schedule C | ⚠️ Schedule C | ✅ Simple | ✅ W-2 |
| Flexibility | ✅ High | ✅ High | ✅ Complete | ❌ Fixed |
| Credibility | ⚠️ Basic | ✅ Professional | N/A | N/A |
| Admin Burden | ✅ Low | ⚠️ Medium | ✅ Minimal | ✅ None |
When to Stay Sole Proprietor
Good Fit If
- Low risk business (no physical products, no clients visiting)
- Just getting started and testing the waters
- Very low income (under $5,000/year)
- Want maximum simplicity
Examples
- Online surveys
- Freelance writing for small clients
- Selling crafts occasionally
When to Form an LLC
Good Fit If
- Any liability risk (services, products)
- Working with larger clients
- Significant income ($10,000+/year)
- Want professional credibility
Examples
- Consulting services
- E-commerce store
- Service business
Tax Implications
Self-Employment Tax
Both sole proprietors and single-member LLCs pay the same 15.3% SE tax on net earnings.
QBI Deduction
Both can qualify for the 20% Qualified Business Income deduction (subject to limitations).
S-Corp Election
LLCs can elect S-Corp treatment to potentially reduce SE tax at higher income levels (typically $50,000+ net).
State Considerations
LLC Costs by State
| State | Filing Fee | Annual Fee |
|---|---|---|
| Delaware | $90 | $300 |
| Wyoming | $100 | $60 |
| California | $70 | $800 (minimum tax) |
| New York | $200 | $25 |
| Texas | $300 | $0 |
California's minimum franchise tax of $800 makes LLCs expensive for small side businesses.
Practical Tips
Tip 1: Start Simple
Begin as a sole proprietor and incorporate later if needed.
Tip 2: Consider Insurance
Business liability insurance can provide protection without LLC costs.
Tip 3: Separate Finances
Even as a sole proprietor, use a separate bank account.
Tip 4: Try Before Committing
Use I am Beezy to earn flexibly without worrying about business structure.
Start with I am BeezyForming an LLC
Basic Steps
Timeline
Most states process LLC filings within 1-2 weeks.
Frequently Asked Questions
Do I need an LLC for a side hustle?
Not necessarily. Many side hustles operate fine as sole proprietorships.
Can I switch from sole proprietor to LLC later?
Yes, you can form an LLC at any time.
Does an LLC save taxes?
Not directly as a single-member LLC. Savings come from S-Corp election at higher income levels.
Checklist Choosing Business Structure 2026
- [ ] Assess your liability exposure
- [ ] Estimate annual income
- [ ] Check state LLC costs
- [ ] Consider starting simple
- [ ] Evaluate need for credibility
- [ ] Try flexible earning with I am Beezy first
Conclusion
For most small side hustles, starting as a sole proprietor makes sense. You can always form an LLC later as your business grows.
For simple, flexible earning without business structure decisions, I am Beezy offers an easy path.
Join I am Beezy
