When to Get an LLC for Your Small Business: Complete Guide for Etsy Sellers, Artists & Creators
Hey friend! If you're here, you're probably running an Etsy shop, selling your art online, or building a creative small business of some sort (YouTube, blogging, social media, content creation, etc) and wondering if it's time to make things official with an LLC. I get it, the decision feels huge, and honestly? It IS a big deal. But it doesn't have to be as scary or confusing as it seems.
I'm writing this because when I was making this decision for DREAMLIKEDIANA, I couldn't find straightforward answers. Everyone either oversimplified it, glorified it and romanticized it, or made it sound like you need a law degree to understand. So consider this your big sister guide to LLCs, hobby income, and what actually matters when you're building your creative business.
Let's dive in.
DISCLAIMER: I am not a finance, tax, or legal professional. This content is for informational purposes only and reflects my personal experience. Always do your own research or seek advice from a qualified professional.
Contents
Does Every Etsy Business Need an LLC?
No. Full stop.
Not every Etsy shop, art business, content creator, or side hustle needs an LLC right away. If you're just starting out, testing products, or making a few hundred dollars a month, you're probably fine operating as hobby income or a sole proprietorship. An LLC is a legal structure that provides liability protection and certain tax benefits, but it also comes with costs, paperwork, and ongoing maintenance.
Think of it this way: an LLC is like upgrading from a bike to a car. Sure, the car gets you further faster, but if you're only going around the block, the bike works just fine. You don't need the LLC until your business is at a point where the protection and legitimacy it offers outweigh the costs and complexity.
BUT BEFORE YOU LLC YOUR BUSINESS
Make sure your business name is available and won't infringe on someone's trademark. Which, really, you should be doing this BEFORE you even choose your artist name or social handles. But I know a lot of people going into this aren't told that or even think that far ahead. It's all fun and games until it's not.
You can search for existing trademarks at the USPTO website (uspto.gov) for free. Search variations of your name to be safe.
Pro Tip: Secure Your Domain Name Early
If you want a cheap domain name, you can get it from hover.com for like $20 a year. And you can have it redirect to your Etsy—Hover makes that super easy to do! No, not sponsored, I just use Hover to save domain names for future projects 😅.
By securing your domain name even wayyyy before your LLC, you're ensuring that you have proof of ownership and first use. If someone tries to claim your business name later or challenges your trademark, having that domain purchase receipt shows you had it first. It's like planting your flag in the digital ground—timestamp and all.
Even if you're not ready for a full website, having your domain name secured protects your brand and looks professional. When someone googles your business name, they can find you.
When Should You Actually Get an LLC?
Here's the real answer: when it makes financial sense and when you're making enough money to cover its costs.
For me, I knew it was time when I started thinking about wholesale accounts, scaling my product line, wanting serious brand collaborations & sponsorships, and making my brand truly official and protected. I run a blog that makes 500k impressions a month under the DREAMLIKEDIANA brand. Now that I have an LLC, if someone wanted to create something similar, they can't. They could technically do it when I just had a website, but now? No. And once I get my trademarks approved, I can send out cease and desists to anyone who has anything remotely close to my name. But that's a whole other ball game for another day.
I'm launching a planner for sale soon (it’ll be undated), and it will be available on Amazon, Barnes & Noble, & many other online retailers, and I needed an LLC for that. Opening a FAIRE wholesale account requires an LLC. All the growth I wanted for myself required an LLC. Even something as personal as moving out on my own funds feels more official with an LLC behind my business.
Some signs it might be time for you:
You're consistently making profit (not just revenue, but actual profit after expenses)
You want to protect your personal assets from business liability
You're ready to invest in your business long-term
You need an LLC to access certain opportunities (wholesale platforms like FAIRE, selling on major retailers like Amazon or Barnes & Noble, certain vendor opportunities)
You're making enough that the tax benefits could actually save you money
You want to legitimize and protect your brand legally
I don't do markets yet—I'm NOWHERE near that stage—but I do know they often require business insurance, which is easier to obtain with an LLC. Eventually, I'd like to explore that avenue too.
But here's what nobody tells you: if you're barely breaking even or reinvesting everything back into your business, the LLC might just be an extra expense you don't need yet. And that's okay.
How Much Does an LLC Actually Cost?
Let's talk numbers because this is where it gets real.
An LLC typically costs between $50-$500 to form, depending on your state. The filing fees and annual renewal fees vary widely by state, so you'll need to research your specific state's requirements.
I used Northwest Registered Agent and paid $125 total to file in Pennsylvania. They handled all the paperwork, and honestly, it was so much simpler than I expected. I filed on August 8th (during the Lion's Gate portal, which felt fitting) and had my LLC officially formed by August 11th—way faster than the August 26th estimate they gave me.
While it doesn’t cost money to renew my LLC in PA, it DOES cost money to renew my registered agent. What that means is, my home address stays private because I used Northwest Registered Agent and that fee is $125 annually. Additionally, PA requires an annual report each year that costs $7 to file. Since I got my LLC in August, I have to file by September 30th, 2026, and then September 30th every year after that.
And here's something they don't tell you:
As a Philadelphia business, I'm required to file a BIRT (Business Income and Receipts Tax), and a NPT (Net Profits Tax) which is ADDITIONAL TAXES on top of everything else. I'm exempt from paying them for the first year, but it's another layer of complexity. I highlyyyyy recommend looking into this website called LLC University to see if your state has hidden fees like mine does!
Can you understand why I was like,
"WHY ISN'T THERE SOMETHING BETTER AND NOT SO COMPLICATED FOR SMALL BUSINESSES AND CREATORS? Why must you overcomplicate my life?!"
According to Google though, a true definition of a small business is a business that makes $6 million in average annual revenue. So I’m actually A MICRO BUSINESS. I’m nobody. Why are we asked to jump through these insane ropes of these “small businesses” when we’re literally not the 1%. Ughhhhh anyways!
New states, new counties, new everything can have other taxes and requirements. My boyfriend lives in North New Jersey, and the plan was ALWAYS to move to NJ and then get my LLC, but life sometimes has other plans. When I do move, I'll be educating myself and learning what to do with my LLC in a new state when the time comes. I learn bits and pieces when I can to prepare myself sooner rather than later.
All in all,
Research your state's LLC filing fees, annual renewal fees, and any additional local taxes or requirements. Don't assume it'll be the same as mine.
You really don't need the fancy packages from places like LegalZoom with all their upsells. A registered agent service like Northwest gets it done without the fluff.
The Three Things I Always Have to Make Sure My Business Bank Account (or Personal Account) Has Money For:
My registered agent renewal fee ($125/year)
30% of everything I make for taxes (set this aside IMMEDIATELY when money comes in)
My website renewal fee ($320/year for Squarespace)
These are non-negotiables. I’m not going to lie, going into this, I barely ever set aside 30%. Because I wasn’t making much. Now with the blog income, I’m like, ummmm… I’m going to need to get truly serious about this because this isn’t hobby income anymore. So before I pay for anything else—supplies, marketing, inventory—I make sure these three things are covered OR AT LEAST 30% of taxes, and I do my own personal contribution towards everything else.
IMPORTANT NOTE:
When you have an LLC, taxes aren't automatically taken from you and you don't get a refund check like a normal job. You PAY taxes instead. Hence setting aside 30%. That's what a lot of people get confused about.
Yes, when you make a sale on Etsy or your shop, sales tax is withheld—but you still have to set aside 30% of your income AFTER all the Etsy fees in your own business bank account for tax season. This is crucial. You're responsible for paying your own taxes quarterly or annually.
Once the money hits the business bank account and these essentials are set aside, I can then pay myself via an owner's draw. But here's the brutal truth: it's so hard to pay yourself when you don't make a lot to begin with.
This is the reality of early-stage business ownership that nobody talks about. You're funding your own dream, covering all the costs, and sometimes there's nothing left to actually pay yourself. But you do it anyway because you believe in where you're going.
Single Member LLC or Multi-Member LLC?
Go single member if you can. Trust me on this one.
I made the mistake of starting with a multi-member LLC. My partner and I were thinking long-term—DREAMLIKEDIANA has always been my baby, but my YouTube growth, my shop, my art… none of it would exist without him. Eventually, I want my business to fund his dreams too. So we thought, “Let’s make this official together.”
Here’s what I didn’t realize: a multi-member LLC is taxed as a partnership by default. That means you have to file Form 1065 for the business and issue a Schedule K-1 to each member every year. If you want to use an online tax software for this, it’s usually $150+ annually, and most people end up hiring an accountant because it can get complicated quickly.
Here’s the kicker nobody really tells you: if you don’t want to pay for software or an accountant, you technically have to prepare the 1065 and K-1 forms yourself and file them by mail—because many e-filing options are limited for partnership returns. The 1065 is due March 15th, and your personal tax return including your K-1 is due April 15th.
While I’m not a tax professional, I REALLY wish this information had been easy to find before I started.
Who Else Needs to File 1065/K-1 Forms?
It's not just multi-member LLCs. You'll also need to file these forms if you have:
Partnerships (two or more people in business together)
S Corporations with multiple shareholders
Multi-member LLCs taxed as partnerships (which is the default)
Even if you're a single-member LLC with employees, you DON'T need to file 1065/K-1. Employees are different from members/partners—they get W-2s, not K-1s. The 1065/K-1 is specifically for ownership structures where profits and losses are distributed among multiple owners.
As a small business just starting out, it's not worth the headache. You can have a soul partnership with someone—they can be involved in every aspect of your business—but from a legal and tax perspective, keeping it as a single-member LLC will make your life so much easier.
We dissolved his membership immediately after we found out how complicated it would be. But here's the kicker: I still have to file the 1065 and K-1s by hand for 2025 because we had the multi-member structure for 5 months. Even though our operating agreement stated he makes NO MONEY from the business until certain milestones were met (livable wage income), and even though I was 75% owner and he was 25%—I still have to deal with the paperwork for those 5 months.
And don't even get me started on the business bank account hoops. They ask for your partner's signature, their SSN, all this documentation... it's just too much when you want to be the primary owner. The government is just trying to cross their t's and dot their i's, but it adds so many layers of complexity.
The good news? Once I'm a single-member LLC in 2026, I don't have to deal with the ugly 1065 and K-1 anymore—unless DREAMLIKEDIANA becomes HUGE like a six-figure or seven-figure business where it makes sense to bring on partners or employees. As a single-member LLC, you don't deal with 1065 or K-1. Just your own business and personal taxes. Until then? It's just annoying extra work.
The Beautiful Part: Amending to Single Member Was Free (For Me)
Here's something nobody tells you: I didn't have to pay money to amend our LLC to a single-member structure. In Pennsylvania, I used Form 8832 and the process was free. I just:
Filed the form and mailed it in
Made a transfer agreement
We both signed it
Updated my operating agreement
Let my business bank account know
That's it. Money and future headaches and stress SAVED.
Important note: This was free for me in PA, but I don't know if it's free for everyone in every state. Do your due diligence and check with your state's requirements and fees before assuming it'll be the same for you!
I wish someone told me about all of this beforehand! This info is NOT available anywhere. No one literally talks about it. Not on Instagram. Not on YouTube. Not on TikTok. Not on Pinterest. That's why I'm writing this post—so you don't make the same mistakes I did.
When Can You Do Tax Write-Offs? Can You Write Off Hobby Income Expenses?
This is a big one: No, you cannot deduct business expenses from hobby income.
The IRS sees hobby income differently from business income. With hobby income, you report what you earn, but you can't deduct your expenses the way a business can. This was fine for me for years while I was building, but once I decided to go all in on myself and my business and get my LLC, everything changed.
Once you’re running a legitimate for-profit business (not just an LLC), you can deduct ordinary and necessary business expenses—supplies, software, shipping, marketing, and even part of your home office if you qualify. With hobby income, though? Those expenses don’t count. You pay out of pocket, period.
Just a note though, say you have subscriptions that you use for personal AND business, you can only claim a % of it. You have to be honest and realistic about those percentages.
For example
Google drive costs me $10.38, and I use it for my business half the time or more than half, but I’m gonna be somewhat humble and say 45% is business. So basically only 45% of the $10.38 is a tax deduction.
Likewise:
iCloud cost 40% is business $2.99
Amazon monthly cost $14.99 15% is business
Apple care+ 40-45% business $7.99
Car stuff (repairs, mileage, AAA, etc) fluctuates but I’d say about 10-20% is business use currently.
The key thing here is you can’t just write off the whole thing because you own a business. It has to be reasonable and defensible.
With full deductions though! These are easy! If it’s used only for business, it’s fully deductible.
Canva — 100% business.
TouchRetouch — also 100% business.
Quickbooks
My PO Box
etc
No guessing. No percentages. Just clean deductions.
My advice? Talk to a trusted financial advisor—preferably one that's free or low-cost. Many banks offer free consultations for small business owners, and SCORE (a nonprofit) provides free mentorship and advice. I bounce between my SCORE mentors & my significant other's brother who is a finance bro & works for Morgan & Stanley while owning his own businesses as well.
Understanding the difference between hobby income and business income is crucial before you make the jump.
What Happens After You Get Your LLC?
Okay, so you filed your LLC. Congrats! Now comes the part nobody warns you about: the administrative avalanche.
Immediately after getting your LLC, you need to:
Get an EIN (Employer Identification Number) from the IRS—it's free and takes about 10 minutes online
Open a business bank account—you MUST keep your business and personal finances separate
Set up a bookkeeping system—you'll need to track every dollar in and out
Update your Etsy tax information (if you sell on Etsy)—this is CRITICAL
Now, I'm not gonna lie, I didn't get my EIN until October and my business bank account until November. My LLC was formed in August. I honestly thought I was gonna dissolve it. I was back and forth about it for sooooo long.
Having an LLC had been on my vision board, but I just didn't feel like I deserved it. It kind of felt like too much, honestly. And it still does sometimes. But I now have a better grasp on it. And with each new thing I'm getting better at understanding it and being like, "I can do this. I deserve this. It's only hard because it's different or new to me. I got this."
So if you're feeling overwhelmed after filing your LLC—that's normal. Take it one step at a time. You don't have to have it all figured out on day one.
And here's the truth: if you didn't like being organized before, you're not going to magically enjoy it now. But it's non-negotiable. You have to track income, profit, expenses, and categorize everything properly for taxes.
It's imperative that people who want an LLC are also somewhat decent with money and planning. If you're not, start making it a priority to use a planner. Get into planning—whether that's a bullet journal or something else. Because you really have to stay on top of important dates: LLC renewal deadlines, quarterly tax estimates, website renewals, trademark deadlines, inventory orders, product launches.
This isn't just about having a pretty planner. This is about not missing crucial deadlines that could cost you money, penalties, or even your business status. Mark everything in your calendar with reminders set weeks in advance. Future you will thank present you.
CRITICAL: Updating Your Etsy Tax Information
Oh man, something else I discovered! When you have an LLC, you HAVE to update your taxes on Etsy. This is not optional, and if you do it wrong, Etsy can lock your account.
Here's exactly how to do it:
In the left bar, find and click: Finances > Payment Settings > Address > Edit Legal Shop Info
When you have an LLC, you have to update Etsy to match that LLC. Here's the question-by-question breakdown:
What type of seller are you?
Click Incorporated Business
Is your business a disregarded entity?
Yes
Primary taxpayer ID
Your info: name and SSN
Name of Legal Entity
Your LLC name
Employer Identification Number (EIN)
Put it in
Tell us about your business
If you use the address of your registered agent (like I did), you need to go into the website where you filed and get the PRINCIPAL ADDRESS
I logged into Northwest Registered Agent, found my LLC, and got the principal address from there
It is NOT my house address or my PO box (those are two different things)
CRITICAL WARNING: Entity Number vs. EIN
IT IS NOT THE SAME AS YOUR EIN. DO NOT PUT YOUR EIN IN THE ENTITY NUMBER BOX. And if you don’t listen, and input the EIN into the Entity Number on your Etsy LLC tax paperwork, you will get a red flag warning that you have TWO MORE tries before Etsy locks your account.
Do this right the first time by learning from my mistake -_-
You have to search for your business in your state's registry.
"[YOUR STATE] Business Registry."
For PA, I went to Pennsylvania Business Search (Corporations Bureau), searched my business name, and the number I found in the (########) format was my Entity Number.
Primary business owner
This is all about you
Yes, your home address—not the shipping address
Then click Submit to Etsy. It should go through with no warning, no alarming red sign.
Trust me, take your time with this. Getting locked out of your Etsy account because of a tax form mistake is NOT the kind of drama you need when you're already stressed about running a business.
Free Business Bank Accounts for Small Businesses:
Relay (my personal favorite—super clean interface, and I'll tell you why in a second)
BlueVine
Novo
I personally tried to go with a local bank—the Philadelphia Federal Credit Union—but they wouldn't write my business name correctly and made so many mistakes. They were patient, but in the end I withdrew my application. If you're just starting out, you don't really need cash deposit capabilities. And if you really do, there are ways to work around it! Because most banks that handle cash flow are going to cost money to upkeep.
For example, with PFCU it looked ideal on paper, but it cost me $10 just to try and open an account, and I didn't get that money back when I withdrew my application despite working with them as much as possible. They were just... ehh.
Relay the app was done in seconds and they approved me for banking by the next day! Then I could fund it however I wanted—meaning I could place money into the account that should be there. Any of my Etsy sales that previously went to my savings account AFTER August 11th, I poured them into the business bank account, along with any affiliate income, etc. It's messy, it's not great, but as long as you have clean bookkeeping and notation, it's okay (so I've been told).
Why I Love Relay
This is why I like Relay: I can make "buckets" to catch money for different things—taxes, income, profit, expenses, etc. With taxes, I make it a savings account, and with their free plan I get 0.91% APY. Which is way more than I ever got on any personal banking!
This organizational system has saved my sanity. I can visually see where my money needs to go and what's actually mine to use.
But here's what really sold me: Relay lets me set up triggers—scheduled and instant auto-transfer rules based on events like income deposits or account balance changes. Rules can be set to trigger on a recurring schedule such as daily, weekly, monthly. I can customize rules, set trigger conditions, allocation percentages, and destination accounts to meet specific cash flow needs.
It's stuff I wanted in my own personal banking that I don't get. Or I'd have to have a subscription with a different program to do it for me. But with Relay business bank account, I get it for free within my account. It's beautiful, honestly.
I'm not normally a cash person—I love having a debit card with my business name on it. I also have a virtual card for online purchases. But here's where Relay really shines: I set up direct deposit for Etsy, Squarespace, PayPal, PayPal Business, Shopify Collabs, all my affiliate marketing websites, Amazon Affiliates—everything goes directly to my business bank account automatically.
I can also issue many different cards for different purposes. I can freeze cards from the app instantly if needed. The user interface is beautiful and intuitive. No, I'm not sponsored. I'm just highly impressed after going through hell trying to set up banking.
But that's just what a physical brick-and-mortar bank is—they're a hassle, they cost money, and they'll give you a headache. One bank I looked at has a $10 monthly fee for a business bank account. Um, no. As a small business owner making little money, that's a hard no. But many banks are like this.
So Relay, BlueVine, and Novo come in clutch! It's that easy. I overcomplicated it. Don't be me. I learned my lesson. I learn from my mistakes though, and then I educate.
Cash Withdrawals with Relay
Relay Direct Withdrawals:
Relay Debit Card: You can use your Relay debit card anywhere Mastercard is accepted
ATM withdrawals: You can withdraw cash at ATMs with your Relay card
Fees: Relay doesn't charge for in-network ATMs, but out-of-network ATMs charge standard fees
Daily limit: Usually around $500–$1,000 per day (check your account limits)
Limitation: You can't get "small change" for a market—ATMs usually dispense $20 bills.
But What About Cash Deposits for Markets?
I do sell in person from time to time, but not markets per se. So I really had to figure out a work around with Relay bank! Relay is primarily designed as a digital-first business bank, so it does not have physical branches and does not accept cash deposits directly. However, there are several workarounds I figured out:
1. Deposit Cash via PayPal → Relay
Deposit cash into a PayPal account using a PayPal Cash Card at participating stores like Walmart, CVS, or 7-Eleven
Transfer from PayPal to your Relay account (ACH transfer; usually 1–3 business days)
Pros: Easy if you already use PayPal
Cons: Some stores charge a fee for cash loading; transfers aren't instant
2. Deposit Cash via Personal Bank Account → Relay
Deposit cash at your personal bank
Transfer funds from your personal account to your Relay business account via ACH
Pros: Works with any cash deposit you can make at your bank
Cons: Funds move from personal to business, so keep careful records for accounting
3. Money Orders
Buy a money order with cash (from USPS, Walmart, or your bank)
Deposit it to your Relay account via the Relay mobile check deposit feature
Pros: Official record, low risk
Cons: Money order fees, slower than digital methods
4. Cash Deposit Services
Ingo Money or Green Dot Reloadable Cards: Load cash onto a card, then transfer to Relay
PayNearMe / 7-Eleven reloads: Load cash onto prepaid debit, then move to Relay via ACH or PayPal
Pros: Cash-to-digital can be fast
Cons: Fees apply, not all cards support transfers to business accounts
Important Notes on Cash Deposits:
Direct cash deposits to Relay are impossible—there's no branch or ATM deposit network
Always keep a record of cash-to-business transfers for accounting/tax purposes
Fees vary depending on method; PayPal and reload cards often charge $1–$5 per deposit
Relay supports wire transfers; if you have a local bank that allows cash-to-wire, you can wire cash indirectly
Getting Smaller Cash Denominations for Markets
And then on the flip side, if you need cash in smaller bills or change for making change at markets:
a) Cash Back at Point-of-Sale
Many grocery stores, big-box stores, and retailers offer cash back when you make a purchase with a debit card
You can specify the amount you want in cash. Example: Buy $5 of groceries, ask for $20 cash back → get $15 cash
Pros: Good for getting small denominations
Cons: Requires making a purchase, may have limits (~$100–$200 per transaction)
b) Third-Party Cash Conversion
PayPal / Venmo / Cash App: Transfer Relay money to one of these apps and use their debit card at stores to get cash back
Pros: Flexibility with apps that allow cash withdrawals at retail locations
Cons: Fees may apply; slower
c) Use a Local Bank or Credit Union
Deposit Relay funds into your personal bank (via ACH or wire), then withdraw cash in small denominations at your bank
Go to your personal bank as a member and ask for specific denominations
Pros: Easy if you already have a personal account nearby, best for getting exact change needed
Cons: Extra step, but safer for large amounts
d) Buy Money Orders / Prepaid Cards
If you need very specific change for a market, you could convert Relay funds to prepaid cards or money orders that you can break down into cash
Fees apply but it's possible
Quick Tip for Markets: The most practical way to get change is usually:
Withdraw cash from an ATM (largest bills)
Break it down at your home, or go to your personal bank as a member and get the specific denominations you need for making change
Free Bookkeeping Software (Alternatives to QuickBooks):
Wave (completely free, great for beginners)
Zoho Books (free for businesses making under a certain amount)
GnuCash (open-source option)
I personally use Notion which is not a Bookkeeping software at all. But I do also have Zoho Books because I already pay $12 a year for my @dreamlikediana.com email with Zoho. That's $1 a month. Google Workspace is sooooo expensive for anyone just starting out, and I never used any of the Google Workspace tools anyway, so Zoho has been amazing for me.
I won't say the UI is amazing, but it's simple enough. And Zoho Books is free—I don't pay extra. I get to keep my email AND bookkeeping all under 1 account. I have my significant other added as an account too and paid an extra $12 a year for his manager email that he hasn't had the ability to flex yet 😂.
But I also got the Solopreneur QuickBooks plan through Etsy. For 3 months I have QuickBooks for $6 a month, after that it’s $20 a month. I don’t know if it’s worth it though yet or not simply because I have yet to learn how to use it properly. AND with the Solopreneur plan you can’t integrate ANY apps. So you can’t link Etsy to your QuickBooks etc. All the tracking has to be done manually. Which I’ve heard if you do even get a higher paid plan and add Etsy, it ruins your bookkeeping so it might not even be worth it. I got it to try it out because I’m not going to lie it sounds realllllllly appealing to have everything linked to Turbo Tax for me automatically. They do have a free plan, but it’s very bare bones. But depending on how things go, this may be what I end up getting after 3 months! I’ll let yall know! (I just started my subscription over the Black Friday weekend.)
That being said, I’ve been tracking everything on Notion because I made my own charts and sheets and it’s easier for me to manage. I am super cozy with Notion.
What Tax Categories Should You Track?
As a small business owner, you'll need to track multiple expense categories. I personally track 11 different categories, and here they are:
Office / Home Office
Equipment
Software / Subscriptions
Supplies
Cost of Goods Sold (COGS)
Marketing / Advertising
Travel / Mileage
Education / Training
Utilities (business portion)
Fees / Taxes / Permits
Postage / Shipping
These categories apply to both income and expenses, so you'll want to set them up in your bookkeeping system from day one.
As a content creator, you might have these expenses:
Camera equipment and tech (Equipment)
Editing software subscriptions (Software / Subscriptions)
Props and backdrops (Supplies)
Stock photos or music licenses (Software / Subscriptions)
Website hosting and domain fees (Software / Subscriptions)
Social media management tools (Software / Subscriptions)
As an Etsy seller, artist, or small business owner, you might track:
Raw materials and supplies (Supplies or COGS)
Packaging and shipping materials (Postage / Shipping or COGS)
Etsy fees and payment processing fees (Fees / Taxes / Permits)
Marketing and advertising costs (Marketing / Advertising)
Product photography equipment (Equipment)
Printing costs (COGS or Supplies)
Office supplies (Supplies)
Professional development (Education / Training)
Insurance (Fees / Taxes / Permits)
Rent or home office expenses (Office / Home Office)
Mileage for business errands (Travel / Mileage)
Remember: Deduction are only available to for-profit businesses. You do not need an LLC, but the activity must be operated with a clear intent to make a profit — hobby income does not qualify.
Home Office Deduction
A lot of people know me from my "starting a business out of a closet space" video. My bedroom is 92 square feet total—I have a bed, my desk, computer, and work machines all crammed in there. Half of my room is personal, the other half is work.
Here's how I calculated my home office deduction: I would honestly say about 27 square feet is for the business. I knocked off 10 square feet because that's where I work out. Yes, I do also apply matte laminate to my stickers that I sell in that space, but not often enough to count it as dedicated business space.
So 27 square feet is tax deductible as my home office. How did I make the calculation? I measured the width & length by feet and multiplied them together.
The IRS requires that your home office be used regularly and exclusively for business. That means:
• It does not have to be a separate room
• It does need to be a clearly defined area used only for business
• You can’t claim your bed as a home office—even if you answer emails there sometimes
There are two ways to calculate the home office deduction:
Simplified method: $5 per square foot (up to 300 square feet maximum)
Regular method: Calculate the actual percentage of your home used for business and deduct that percentage of your mortgage/rent, utilities, insurance, etc.
For me with 27 square feet, the simplified method gives me a $135 annual deduction ($5 × 27 square feet). It's not huge, but every deduction counts when you're bootstrapping.
Important: You can only take the home office deduction if you are operating a legitimate for-profit business. An LLC is not required, but hobby income does not qualify.
What About Multi-Member LLC Tax Benefits?
One advantage I will give multi-member LLCs is that shared, legitimate business expenses can be deducted across the business—things like business travel, meals, and other ordinary and necessary costs, as long as they’re truly for the business.
That said, a multi-member LLC doesn’t unlock extra write-offs compared to a single-member business. The deductions themselves are the same — the difference is in how the taxes are filed.
Here’s the real catch: multi-member LLCs are significantly more complex at tax time. You’re dealing with partnership tax returns, K-1s, and stricter reporting requirements. While it’s technically possible to DIY, most people are far better off hiring a professional.
Accountants aren’t cheap, so unless your business is bringing in meaningful revenue, the added tax complexity often outweighs any perceived benefit. For many small or early-stage businesses, the extra cost and administrative headache just isn’t worth it.
Do You Need an LLC for Wholesale or Markets?
It depends — but often, yes.
Many wholesale platforms (like FAIRE) require sellers to be registered businesses, which commonly means having an LLC or another formal business structure. Some craft markets and vendor events also require proof of business registration and liability insurance, both of which are generally easier to obtain when you have an LLC.
I’m not at the market stage yet, but opening a FAIRE wholesale account is on my roadmap, and having my LLC will make that process smoother. It’s also given me more confidence when pitching to stockists and approaching larger opportunities because I’m operating as a formal business.
While an LLC isn’t always legally required, certain growth opportunities can be limited without formal business registration. You can only go so far operating as hobby income before some doors start to close.
But What About Website Costs and Other Fees?
Let's be real about the full cost of running a creative business, LLC or not.
My website costs me $320 to renew every year with Squarespace ($296 for the website, + tax, then $20 for the domain name). Shopify costs even more. And guess what? You still pay transaction fees on every sale—just not as much as Etsy charges. You just don’t pay listing fees like you do on Etsy. Say you have 200 listings on Etsy, you only pay $40 to list them because each costs .20. Each time someone buys them, it gets charged the .20 again. And if they don’t ever sell you’re looking at $160 a year. That’s still a whole lot less than what I pay for a website. I’m not saying you will have 200 listings, I’m just pointing out an example.
An LLC is similar. You pay the initial filing fee, then annual renewal fees. But just like a website isn't necessarily essential from day one (you can start with just an Etsy shop), an LLC is something you add when the business justifies the cost.
Think of it as leveling up: you start with Etsy because it's low-cost and accessible. Then you might add your own website for more control and branding. Then you add an LLC for legitimacy and protection. Each step costs more but opens new possibilities.
How I Knew It Was Time (Even When I Was Scared)
I'll be honest, for months after filing, I questioned everything. What am I doing? Is this the right move? Should I just dissolve it and stick with hobby income?
Here's the reality nobody talks about: I'm not actually making a lot of money right now. In previous years with hobby income, I was making an extra $3-5k annually—it really depended on the year and the economy. But I had less time to work on it back then, so i thought, if I go all in I should be able to make more right? Ha! Hahahaha! The economy is shit, that is fact, and my shop didn't launch until June, but I really wish going all in on my business actually meant that I could spend more time creating products, making videos etc. But realistically, I'm doing more behind the scenes work than before. And while i knew that it was a lot of nitty gritty, it got to be even more excessive with the added on LLC.
I've been making money as an affiliate marketer and brand ambassador under DREAMLIKEDIANA since 2021. The blog and .com have existed since 2019, and my social channels since 2016.
This year? From January to December, I'm looking at making a HUGE fraction of what I made before, simply because the economy is terrible. And that's WITH my business officially formed. I'm breaking even or maybe even operating at a loss. But I put in my own personal money, and that's okay.
I applied to full-time jobs—10 applications a day for over a year—and completely burnt out because no one's hiring. I've exhausted my network trying to find a job in this economy, but I get back the same response: "No one's hiring." "We're in a hiring freeze." Even having connections doesn't get you a foot in the door anymore. And I do have quite a large network.
In the past, I would just get 1 interview and they'd hire me on the spot. I don't say that to brag, but I have 2 decades of work experience. When most people were being teenagers, I was working since I was 13. Count your blessings, because if I wanted something as a child, I had to work for it. Oh, the beauty of having immigrant parents born in the 1950s in communist Poland. I wasn't handed anything in life. I worked tooth and nail.
All I can do is go all-in on myself and try. For a year. And see what happens. Then revisit the LLC, the website, everything annually. Should I continue or give up?
Every single day I question myself. I'm tired. I just want to make it already. My family laughs at me. They think I'm a joke. My significant other is my biggest supporter, but I'm holding us back because I can't move out yet. I need to. I want to. But I can't.
It's hella scary. I cried a lot during the last few months. It's been messy.
But I have hope and faith and belief that I will make money. That I will grow. That I will scale. Because I know how to do it for others—I've just never had the opportunity or time to go all in on myself until now.
I believe in divine timing. Without the LLC, I'd probably have a harder time creating certain products or really going all-in on myself. It forced me to take my business seriously, to set up proper systems, and to think bigger.
So here's what I want you to know:
You don't have to be profitable to get an LLC. You don't have to have it all figured out. Sometimes you make the scary leap because you believe in where you're going, not where you currently are.
Yes, it's a commitment. But if you're at that point where you're ready to scale, where you're dreaming about wholesale or bigger markets or turning this thing into your full-time income—even if the money isn't there YET—the LLC can be the bridge that gets you there.
You can be 1000% all-in on your business while still operating as hobby income. But sometimes taking that official step, even when it's terrifying, is what shifts everything.
Should You Wait or Jump In?
Here's my final take: don't get an LLC just because it sounds professional or because someone told you that you should.
Get an LLC when:
You're making consistent profit
You understand the ongoing costs and responsibilities
You're ready to level up your business operations
You need it for specific opportunities
You can afford an accountant or are willing to learn bookkeeping
Don't get an LLC when:
You're just starting out and testing the waters
You're barely breaking even
You're not ready for the administrative demands
You can't afford the filing and renewal fees
The Bottom Line
An LLC isn't a magic solution that makes your business successful. It's a tool that becomes useful at a certain stage of growth. Hobby income is completely valid and legitimate for years while you're building—I was there too.
The key is being honest with yourself about where you are and where you want to go. Sometimes you're ready to scale even when the money isn't there yet. Sometimes you need to take the leap because you believe in your vision, not because your bank account says it's time. And sometimes, waiting is the smartest move.
For me, getting my LLC wasn't about being profitable—it was about committing to the belief that I will be. It was about setting up the infrastructure for the business I'm building, not just the business I have today.
I hope this helps you make the decision that's right for YOUR business, not what social media or business gurus say you "should" do. Trust your gut, do your research, and remember: your timeline doesn't have to look like anyone else's.
You've got this, friend.
If This Post Helped You...
Real talk: I stayed up late so many nights trying to make sense of all of this. I cried a lot during the last few months trying to figure it out. It's been messy, but I fully believe it will be worth it.
I created this blog post because I wish someone had written this for me when I was drowning in confusion and overwhelm. Content like this wouldn't exist without someone like me—someone in the trenches, figuring it out, and sharing what I learn along the way.
This information is NOT available anywhere else. No one talks about the real details of multi-member LLCs, the 1065 and K-1 nightmare, the hidden costs, the emotional toll. Not on Instagram. Not on YouTube. Not on TikTok. Not on Pinterest. But now you know—and I need you to help me spread this information.
Please link everyone you know to this post. Share it with your creative friends, your Etsy seller groups, your small business communities. This is the real, unfiltered info we all need.
Have more questions? Leave comments on any of my YouTube videos—I'll see them there the fastest and will either reply directly or update this post with new information.
If this post helped you at all, here's how you can support:
Shop from my affiliate links or my Etsy shop or my direct shop here on this site
Each dollar genuinely helps me keep going and support this dream
I work hard. I don't beg. I don't expect success to land in my lap. But your support means everything.
Want to follow the journey? Subscribe to my YouTube channel for behind-the-scenes of building DREAMLIKEDIANA, the messy middle, the wins, the losses, and everything in between. I'm documenting it all because transparency matters.
Thank you for being here. Thank you for reading. Thank you for supporting small businesses and creators who are just trying to make it.
✨ Now go build that dream business—LLC or not.
