<story><title>Ask HN: How do you handle the business structure and taxes of side projects?</title><text>For those of you with income generating side projects, have you incorporated? Do you pay quarterly taxes? Do you list it as other, unreported income on your returns?</text></story><parent_chain><item><author>joshuaheard</author><text>Lawyer and entrpreneur here. There are 2 main reasons to incorporate: liability protection and ease of administration.&lt;p&gt;You don&amp;#x27;t say what your side project is, but you have to ask your self whether you need liability protection, that is what are the chances someone is going to sue you for damages. If you feel you need liability protection, then you should form an entity. I recommend an LLC in most cases. It is a pass-through entity for taxes which means you pay taxes on your individual return (though it still must file a business tax return). Also buy insurance.&lt;p&gt;The other reason is ease of administration. A legal entity will have some form of controlling document. In an LLC, it is the Operating Agreement. This spells out the rights and duties of the principals in the business. It also allows for common ownership of the business assets. As principals come and go, the LLC continues on. Finally, if you get big and you bring on investors, they will want to see a legal entity for their protection.&lt;p&gt;The drawbacks of forming an LLC are the time and effort of drafting and filing all the proper incorporating documents, paying the filing fees (in California $800 per year), and the extra tax forms.&lt;p&gt;This is a complicated topic and I have given a high level view. There are lots of resources on the internet and in bookstores on this topic. Nolo.com would be a good place to start.</text></item></parent_chain><comment><author>ryandrake</author><text>&amp;gt; The drawbacks of forming an LLC are the time and effort of drafting and filing all the proper incorporating documents, paying the filing fees (in California $800 per year), and the extra tax forms.&lt;p&gt;Bah. I briefly did a side project that did not end up making any money (it was more of a hobby with a partner), and that $800 a year was the biggest buzzkill. What a waste. By far our two biggest yearly expenses were 1. that $800 and 2. paying an accountant* a few hundred to do our 40 page tax return that said $0 at the bottom.&lt;p&gt;Noting that I am NOT a lawyer and my legal advice is worthless: I would not LLC again until whatever project I was working on actually was making money.&lt;p&gt;[*] Sure, I could have probably prepared the tax returns myself, but I was not willing to risk making a typo on page 34 and having the IRS after me for $N,000. No thanks.</text></comment>
<story><title>Ask HN: How do you handle the business structure and taxes of side projects?</title><text>For those of you with income generating side projects, have you incorporated? Do you pay quarterly taxes? Do you list it as other, unreported income on your returns?</text></story><parent_chain><item><author>joshuaheard</author><text>Lawyer and entrpreneur here. There are 2 main reasons to incorporate: liability protection and ease of administration.&lt;p&gt;You don&amp;#x27;t say what your side project is, but you have to ask your self whether you need liability protection, that is what are the chances someone is going to sue you for damages. If you feel you need liability protection, then you should form an entity. I recommend an LLC in most cases. It is a pass-through entity for taxes which means you pay taxes on your individual return (though it still must file a business tax return). Also buy insurance.&lt;p&gt;The other reason is ease of administration. A legal entity will have some form of controlling document. In an LLC, it is the Operating Agreement. This spells out the rights and duties of the principals in the business. It also allows for common ownership of the business assets. As principals come and go, the LLC continues on. Finally, if you get big and you bring on investors, they will want to see a legal entity for their protection.&lt;p&gt;The drawbacks of forming an LLC are the time and effort of drafting and filing all the proper incorporating documents, paying the filing fees (in California $800 per year), and the extra tax forms.&lt;p&gt;This is a complicated topic and I have given a high level view. There are lots of resources on the internet and in bookstores on this topic. Nolo.com would be a good place to start.</text></item></parent_chain><comment><author>no_protocol</author><text>&amp;gt;  paying the filing fees (in California $800 per year)&lt;p&gt;Wow, that seems super high.  So if I was running a side project in California I might be stuck deciding between wasting 10% or more of my income on fees or putting my personal assets at risk in a sole proprietorship?&lt;p&gt;Since you mention you are a lawyer, can you comment at all on the limits (if any) of liability protection with an LLC.  Is a single-person LLC going to be a solid shield over my personal assets, or are there still possible risks?&lt;p&gt;Edit: It looks like the fees to maintain an LLC in my locality would be less than 5% of the $800 fee mentioned for California.  Does California just not like small businesses?</text></comment>