Closing LLC for side hustle but still doing side hustle?

[chickenstick]

Hey folks, I have a side hustle. It is effectively a hobby, but does generate a few thousand dollars per year. It is a small publishing company. I have inventory (books) which I order from print-on-demand printer, then sell to customers. I make payments to a couple of contractors for their help on the project.

I formed a single-member LLC last year because I thought I needed to, but this fact is causing me a hassle with taxes this year, and since I don't get the impression I have to have this LLC to do my side hustle, I'm considering getting rid of it.

How would I run this side hustle if I got rid of the LLC? Just open the corresponding business bank accounts as personal accounts, keep up with all the same transactions, pay all the same contractors, keep up with the same inventory and expenses, and . . . anything else?

I'm sure this is a basic question, but bear with me.

[Michael in ABQ]

Hey folks, I have a side hustle. It is effectively a hobby, but does generate a few thousand dollars per year. It is a small publishing company. I have inventory (books) which I order from print-on-demand printer, then sell to customers. I make payments to a couple of contractors for their help on the project.

I formed a single-member LLC last year because I thought I needed to, but this fact is causing me a hassle with taxes this year, and since I don't get the impression I have to have this LLC to do my side hustle, I'm considering getting rid of it.

How would I run this side hustle if I got rid of the LLC? Just open the corresponding business bank accounts as personal accounts, keep up with all the same transactions, pay all the same contractors, keep up with the same inventory and expenses, and . . . anything else?

I'm sure this is a basic question, but bear with me.

From a tax perspective there's really no difference if you run this through a single-member LLC with a separate EIN or as a sole proprietorship with your social security number. Either way the income and expenses for the business go on a Schedule C of your 1040 and flow through to your personal taxes.

The LLC is basically a facade to shield you from liability - which is essentially zero unless someone tries to sue you for getting a papercut. From a government/tax perspective it's considered a disregarded entity.

The cost of the LLC depends on your state. Here in New Mexico I pay a registered agent $100/year to maintain a business address (mailbox) and have their name in public records. I think the state charges $50/year (though there's zero documents or reports to file annually except quarterly gross receipts tax). California on the other hand charges something like $800/year just for the privilege of having an LLC. Other states fall somewhere in between.

[Archipelago]

How would I run this side hustle if I got rid of the LLC? Just open the corresponding business bank accounts as personal accounts, keep up with all the same transactions, pay all the same contractors, keep up with the same inventory and expenses, and . . . anything else?

Seems simple enough.

Dissolve the LLC. You could keep the business accounts, change the name on them to your own name, SSN, address, etc. You're still a business, just not an LLC. Track income and expenses and report them on Schedule C. File Schedule C like you normally would.

If someone sues you in that case, they'd be suing you and not the LLC. You decide whether there's enough intrinsic liability in your business to warrant the switch.

[trollwithamustache]

Check with a real accountant but my understanding is S-corps and LLC's have lower audit rates.  So could be some risk avoidance value there once you figure out the tax filing.  Using the Hobby word gets the IRS hot and bothered.

[JupiterGreen]

I am going to second the advice to see an accountant ^

I removed my response because I don't think it was particularly helpful!

[Michael in ABQ]

Check with a real accountant but my understanding is S-corps and LLC's have lower audit rates.  So could be some risk avoidance value there once you figure out the tax filing.  Using the Hobby word gets the IRS hot and bothered.

The IRS only cares when people call something a hobby as a tax write off. I.e. you make $500 a year giving a horse-riding lesson but then claim $10,000 in expenses for keeping the horse for your own personal enjoyment - and do so year after year. If you're making a profit and paying taxes on it, your chances of an audit are remote. And even if you are audited there should be nothing for them to find unless you try to call a bunch of personal expenses business expenses.

[SeattleCPA]

Hey folks, I have a side hustle. It is effectively a hobby, but does generate a few thousand dollars per year. It is a small publishing company. I have inventory (books) which I order from print-on-demand printer, then sell to customers. I make payments to a couple of contractors for their help on the project.

I formed a single-member LLC last year because I thought I needed to, but this fact is causing me a hassle with taxes this year, and since I don't get the impression I have to have this LLC to do my side hustle, I'm considering getting rid of it.

How would I run this side hustle if I got rid of the LLC? Just open the corresponding business bank accounts as personal accounts, keep up with all the same transactions, pay all the same contractors, keep up with the same inventory and expenses, and . . . anything else?

I'm sure this is a basic question, but bear with me.

From a tax perspective there's really no difference if you run this through a single-member LLC with a separate EIN or as a sole proprietorship with your social security number. Either way the income and expenses for the business go on a Schedule C of your 1040 and flow through to your personal taxes.

The LLC is basically a facade to shield you from liability - which is essentially zero unless someone tries to sue you for getting a papercut. From a government/tax perspective it's considered a disregarded entity.

The cost of the LLC depends on your state. Here in New Mexico I pay a registered agent $100/year to maintain a business address (mailbox) and have their name in public records. I think the state charges $50/year (though there's zero documents or reports to file annually except quarterly gross receipts tax). California on the other hand charges something like $800/year just for the privilege of having an LLC. Other states fall somewhere in between.

Totally agree with above. +1

[SeattleCPA]

Check with a real accountant but my understanding is S-corps and LLC's have lower audit rates.  So could be some risk avoidance value there once you figure out the tax filing.  Using the Hobby word gets the IRS hot and bothered.

An S corp probably does get audited less than a sole proprietorship. But as @Michael in ABQ points out above, by default an LLC with a single member (or owner) is a sole proprietorship for tax purposes. So I'd doubt that an "LLC" sole proprietorship bears less risk than a  "Non LLC" sole proprietorship.

[SeattleCPA]

Check with a real accountant but my understanding is S-corps and LLC's have lower audit rates.  So could be some risk avoidance value there once you figure out the tax filing.  Using the Hobby word gets the IRS hot and bothered.

The IRS only cares when people call something a hobby as a tax write off. I.e. you make $500 a year giving a horse-riding lesson but then claim $10,000 in expenses for keeping the horse for your own personal enjoyment - and do so year after year. If you're making a profit and paying taxes on it, your chances of an audit are remote. And even if you are audited there should be nothing for them to find unless you try to call a bunch of personal expenses business expenses.

FWIW, totally agree (again) with Michael.

[chickenstick]

Hey folks, I have a side hustle. It is effectively a hobby, but does generate a few thousand dollars per year. It is a small publishing company. I have inventory (books) which I order from print-on-demand printer, then sell to customers. I make payments to a couple of contractors for their help on the project.

I formed a single-member LLC last year because I thought I needed to, but this fact is causing me a hassle with taxes this year, and since I don't get the impression I have to have this LLC to do my side hustle, I'm considering getting rid of it.

How would I run this side hustle if I got rid of the LLC? Just open the corresponding business bank accounts as personal accounts, keep up with all the same transactions, pay all the same contractors, keep up with the same inventory and expenses, and . . . anything else?

I'm sure this is a basic question, but bear with me.

From a tax perspective there's really no difference if you run this through a single-member LLC with a separate EIN or as a sole proprietorship with your social security number. Either way the income and expenses for the business go on a Schedule C of your 1040 and flow through to your personal taxes.

The LLC is basically a facade to shield you from liability - which is essentially zero unless someone tries to sue you for getting a papercut. From a government/tax perspective it's considered a disregarded entity.

The cost of the LLC depends on your state. Here in New Mexico I pay a registered agent $100/year to maintain a business address (mailbox) and have their name in public records. I think the state charges $50/year (though there's zero documents or reports to file annually except quarterly gross receipts tax). California on the other hand charges something like $800/year just for the privilege of having an LLC. Other states fall somewhere in between.

Totally agree with above. +1

In my other thread, you said owning a business is what makes taxes complex. Is owning a single-member LLC (basically a sole proprietorship) not the type of business that make taxes complex?