I'm about to launch a small shop selling digital downloads (mostly templates and printable planners). Revenue projections are modest, maybe $500-1000/month in the first year. Is it worth forming an LLC from the start, or should I just operate as a sole prop until things pick up? I keep hearing about liability protection but also fees and paperwork. What would you do?
LLC
Selling digital downloads through an LLC: worth setting up from day one?
For digital downloads, liability is pretty low. Unless you're selling something that could actually harm someone, an LLC is overkill at that revenue level. Save your money, and revisit when you're making more.
I formed an LLC day one for my design shop and honestly it was mostly for the 'legit' feeling. The annual fee in my state is $50, so not a big deal. But if youu're in California, that $800 franchise tax will eat you alive. Check your state fees first.
Sole prop here. Been selling printables for 3 years, no LLC. I just got business insurance instead. Way cheaper and covers the actual risks. But I'm not a lawyer, so grain of salt.
Thanks for the input. I'm in Texas, so no state income tax and the LLC filing fee is $300. Still on the fence. The insurance angle is interesting—what kind of policy do you have, sarabear?
Just a general liability policy through my homeowner's insurance rider. Costs like $15/month. Covers if someone claims my template caused them to lose data or something weird. Probably unnecessary but helps me sleep.
LLCs are cheap to maintain in Texas. $300 filing and no annual report fee. I'd say do it now if you plan to grow. Separating finances from day one is a pain later. Plus you can always dissolve if it flops.
Dissolving is easy but closing bank accounts and dealing with the IRS is annoying. Not free either. I'd only form if you have a real reason like wanting a business bank account or protecting personal assets from a lawsuit. For digital downloads, the lawsuit risk is basically zero unless you're plagiarizing.
Also, don't forget the tax side. An LLC doesn't change your taxes by default—you're still a pass-thrugh. So if you're doing it for tax benefits, you'll be disappointed unless you elect S-corp, which is way more paperwork. Probably not worth it at $1k/month.
Yeah but S-corp election at that revenue would cost more in payroll taxes and accounting than it saves. Wait until you're clearing at least $50k profit beflore even thinking about S-corp. For now, LLC or sole prop, the tax treatment is identical.