If you’re going to start a sideline business, set it up as a limited liability company (LLC). This business structure provides the limited liability of a corporation so your personal assets won’t be at risk from business-related claims.
An LLC provides the tax treatment of a partnership so no corporate income tax will be due while any operating losses may be passed through to you, as a tax deduction. The same tax benefits are available to S corporations but S corporations have to meet certain qualifications: they can’t have foreign owners, for example. An LLC doesn’t face that restriction.
If you decide to convert your LLC to a corporation some day you’ll probably be able to do so without running into tax headaches. However, if you start out doing business as a corporation, a future shift to an LLC or a partnership may cause tax problems.
