Estimated reading time: 2 minutes, 38 seconds

There comes a time when your side hustle is ready to become a full business. You will realize the importance of this step most if you are dealing with customers or creditors. There are two particularly common structures for small businesses to follow. On the one hand, we have Limited Liability Companies (LLC), and on the other, S-Corporations (S-Corp).

Limited Liability Companies

What does an LLC entitle?           

  • Legal protection:
    • Assuming there is no co-mingling of funds.
  • Pass-through entities:
    • There is no income tax at the corporate level.
  • Members can freely draw money from the company:
    • This will not be taxed as compensation.
  • No salary requirements.
  • Members can be individuals or entities.
  • No corporate regulations.
  • Profits are subject to self-employment taxes.
  • No separate income tax returns are required if there is only one member.
  • S-Corporation elections, if needed.

 S-Corporations

 What does an S-Corp entitle?

  • Legal protection:
    • Assuming there is no co-mingling of funds, and if compliant with regulations.
  • Pass-through entities:
    • There is no income tax at the corporate level.
  • Owners can make tax-free distributions:
    • This will not be taxed as dividends.
  • Salary requirements:
    • It can be reasonably determined by owners.
  • Shareholders can only be individuals:
    • Maximum: 100 shareholders.
  • Corporate regulations:
    • There must be annual shareholders meetings.
    • Elections for officers with minutes.
    • Issue stock to shareholders.
  • Profits are subject to self-employment taxes.
  • Separate tax returns are required.

When taking your side hustle to the next level and registering your side hustle as a full business, you protect your personal assets from those of the business. In the event of any lawsuit or bankruptcy, your personal assets will not be at risk—provided there is no comingling of assets. Aside from this, registering your entity will allow for tax-preferred retirement savings. This means you can establish a solo 401k plan, which comprises a salary deferral contribution and a profit-sharing contribution.

My professional recommendation to take your side hustle to the next level is to begin by structuring your business as an LLC. This is extremely recommendable if you are unsure of the direction of the business, or if you are a single owner or member. In this scenario, you will not be bound by corporate regulations and will not have to file a separate tax return. Once you notice your business has become profitable, you would be able to move on to an S-Corp to enjoy its tax benefits and set salaries to avoid potential audits.


Mirel Barcelo is the founder and owner of Corp 1, LLC, where she offers her comprehensive services as a CPA in Florida.

Barcelo comes from extensive education and experience in accounting. She graduated from Florida International University with a Bachelor’s in accounting, as well as an Executive Master in science of taxation. Barcelo then went on to become a Certified Public Accountant in the state of Florida.

Her company, Corp 1, LLC., specializes in personal and corporate income tax services, IRS audit management and representation, tax preparation, accounting educational course programs, and sales tax compliance. Barcelo also offers accounting and bookkeeping services, compliance consulting, corporate services, and notary services. For more information, please visit https://corp1llc.com/

Read 230 times
Rate this item
(0 votes)

Visit other PMG Sites:

click me
PMG360 is committed to protecting the privacy of the personal data we collect from our subscribers/agents/customers/exhibitors and sponsors. On May 25th, the European's GDPR policy will be enforced. Nothing is changing about your current settings or how your information is processed, however, we have made a few changes. We have updated our Privacy Policy and Cookie Policy to make it easier for you to understand what information we collect, how and why we collect it.
Ok Decline