One in three Americans, and more than half of millennials, have a side hustle to bring in an extra $686 a month on average, according to a Bankrate report. And the average side hustler makes an additional $8,000 annually.
But some side hustlers could tap into their hidden potential and make even more. At some point, you might consider turning your side gig into a full-time opportunity.
Whether you want to keep your side hustle on the side or transition to a bigger business model, your gig could benefit from becoming a Limited Liability Company (LLC). Why? Here are 10 reasons:
- Liability Protection: Forming an LLC means you have legal and financial protection in case an issue arises. Legally, only the LLC is responsible for debts and liabilities incurred by the business — not the members personally. That’s pretty important, and will provide you some major peace of mind.
- Big Tax Benefits: This business structure combines the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation, creating the best of both worlds for business owners. An LLC typically does not pay taxes itself — instead, the income/losses are “passed through” to the LLC owner and taxed as personal income. For side hustlers who have another form of employment, this means their combined income of both side gig and other employment will be taxed together. Simple!
- No Ownership Restrictions: If you are a side hustler who bounces around between states (and maybe even countries), then an LLC is a great option. An LLC does not have any residency or citizenship restrictions, which allows foreign nationals to have ownership in an LLC. You can also live in a different location from where your LLC is registered.
- Simple and Flexible: An LLC is a great choice for small business owners, as it can provide the same limited liability protection as a larger S Corp, without many of the complexities and formalities associated with them. The LLC’s simplicity and flexibility allow you to quickly and easily form your LLC and then adjust to another entity type down the road if your business needs change.
- Inexpensive: In comparison to other entity types, such as the S Corporation or C Corporation, forming an LLC is inexpensive. In fact, you can start your LLC for as little as $49 + state fees with Incfile.
- Credibility: When your clients and/or customers are searching for goods and services, having the LLC in your business name establishes automatic credibility. Some clients and customers will only work with or purchase goods from “legitimate businesses” who have a legal business entity.
- Scaling Potential: If you are serious about growing your business now or in the future, forming an LLC will help you to grow into your full business potential. Scaling means more income and earning potential for you and your business.
- Minimal Paperwork: As a side hustler, you may not have time to spend hours recordkeeping, creating annual reports, and holding shareholder meetings (like you’d have to if you owned a corporation). An LLC has minimal paperwork and requirements that you have to adhere to, and Incfile offers many convenient services to help you manage your business.
- Privacy Protection: Sending your personal information (including your Social Security Number) to any vendor or client who asks for it when you are doing business with them can be unsettling. But forming an LLC helps separate your personal information from the business. When establishing your LLC, you will receive a Federal Employee Identification Number (EIN), which is essentially a Social Security Number for your business. This way, your sensitive personal information is not as closely tied to the business — you’re helping to establish the legal barrier between yourself and the company.
- Flexible Profit Distribution: If the LLC members choose, net income and profits of the LLC may be allocated to the members in different proportions according to their ownership percentage in the LLC. This means that if certain people pull more weight to run your side hustle than others, you can distribute the profits accordingly.