How To Start An LLC For Etsy Business 2023?

15.06.2023 12:50

Compelo.com

If you sell on Etsy, you might be trying to decide between running your Etsy shop as an LLC or sole proprietorship. LLCs offer a higher level of liability protection and can help an Etsy seller appear more legitimate than they would as a sole proprietor.

That’s why we’ve created this guide. It covers everything you need to know about forming an Etsy LLC, from step-by-step instructions for setting up the business structure to tips Etsy sellers can use to get more out of this business structure. Read on to learn more.

What Is An LLC For Etsy Business?

A Limited Liability Company (LLC) is one business structure you can use to sell on Etsy. It’s an alternative to operating as an S corporation, sole proprietorship, or unincorporated business structure. Each of these business entity options has its own pros and cons related to taxes, protection for personal assets, and other factors.

But for many Etsy sellers, an LLC offers the right blend of protection and flexibility. It could be the right business entity option for your Etsy shop as well. But to decide that, you need to understand the pros and cons of this legal business structure. We cover those in the next section.

The Benefits And Drawbacks Of Using An LLC For Etsy Business

Advantages

There are several excellent reasons to form an LLC. The first is that doing so allows you to complete business transactions on Etsy without being held personally liable if you ever get sued by a customer. This form of limited liability protection is why many business entities decide to become LLCs – even Etsy shops that form a single-member LLC.

There are also some LLC tax benefits you may be able to take advantage of in addition to an LLC limited liability protection. For example, you can avoid double taxation and may pay lower self-employment taxes as a new business owner, but these benefits for tax purposes are determined by your state and local government.

Another thing to note is that if you form an LLC to sell on Etsy, you may appear more legitimate as a business. This could help you conduct business more effectively than sole proprietorships and may help you improve your sales transactions and business operations or even raise capital if you need to.

Disadvantages

The biggest disadvantage to an LLC for your Etsy shop is the cost of doing so. You typically have to pay a filing fee when you submit your LLC operating agreement to the state. There are also ongoing annual reporting fees for LLCs located in many states.

It’s also worth mentioning that your business activity could be somewhere restricted by the LLC business registration. For example, you may have more stringent requirements you need to follow on profit-sharing and tax implications for both federal tax and state tax. But this would only apply if you have a general partnership with another LLC owner rather than operating your LLC as sole proprietors.

What Are The Tax Benefits For An LLC Etsy Business?

The most significant tax benefit to operating your Etsy shop as an LLC is that you won’t have personal liability if you sell on Etsy and end up being sued or facing financial consequences as a result. Your personal assets will be separate from your business bank account – both when you pay taxes and when you’re managing your personal finances. That way, you can form an LLC and run your business without having to worry as much about putting your personal bank accounts at risk.

There could also be more tax benefits available to you. For example, you can avoid double taxation with an LLC pass-through entity and may be able to save on income tax if you register your LLC to sell in a state with better tax consequences for LLCs than a sole proprietorship.

How To Form An LLC For An Etsy Business? Steps By Steps

Now that we know why you may want to sell on Etsy as an LLC instead of sole proprietorship, let’s look at step-by-step instructions you can use to turn your Etsy shop into a fully-functioning LLC.

Research your state’s paperwork requirements

The first step you should take is researching the type of paperwork your sole proprietorship will need to fill out in order to become an Etsy shop LLC. Each state is different. But you will often have to complete an LLC operating agreement that details your business name, business assets, business license (if applicable), and business expenses, among other details.

Fill out the required forms

Once you’ve found the forms your state requires, you can begin filling them out. The business formation paperwork is what the state will look at when determining whether you operate a legitimate business that meets all legal requirements to sell products with this entity.

Most Etsy sellers meet all of the requirements. But you may need to do things like set up an employment identification number for your general partnership before you can claim this is the right business structure for your Etsy shop and business name.

Pay your filing fees

Next up, pay your filing fees. These are due when you submit your business formation paperwork to the state. They can be as little as $50 or as much as several hundred dollars. It depends on which state you’re completing the LLC formation process in and how much they charge to go from a sole proprietor to an LLC business name.

At this point, you may also want to look into a general business license requirement for your state. You may need a business license to collect sales tax and pay income tax through your new Etsy shop LLC. But this, like the employer identification number and business bank account requirements, vary based on the state you’re in.

Prepare your Etsy shop to operate as an LLC

Now you’re ready to start getting your business ready to operate as an LLC. That means separating personal expenses from business expenses, choosing a valid business name, applying for any relevant business license, and completing any state-specific sales tax requirements, among other details.

Respond to any requests for adjustments from the state

At this point, all that’s left to do is wait for the state to review your paperwork and get back to you. They’ll let you know if they need any additional information related to a business license or sales tax to complete the formation process. If they request anything, be sure to provide the details in a timely manner so you can get your new LLC up and running as soon as possible.

Top 2 LLC Services

You also have the option of using a professional business formation service to create a new LLC for your Etsy store. If you’d like some assistance, here are two of our favorite providers.

	ZenBusiness	Northwest Registered Agent
Award	Best Overall	Most Affordable
Price	$0 – $299 + state filing fees	$0 – $225 + state filing fees
Rating	4.8/5	4.7/5
Detail	Read Review	Read Review
Link	Visit Website	Visit Website

ZenBusiness

ZenBusiness offers a wide variety of services in addition to assistance with the LLC formation process. They can help you better understand the owner’s personal tax return, figure out your sales tax requirements, and even set up a business license. The company also offers after-hours customer support, so you can get the support you need whether you have either a business question or personal question.

Northwest Registered Agent

Northwest offers slightly fewer services than ZenBusiness at a slightly lower price. They can also help with everything from forming an LLC to helping you procure your next business license. They could be a fit for you if you’re looking to save money without sacrificing too heavily in the way of quality.

Tips To Maximize Benefits For An LLC For Etsy Business

If you’ve been running your Etsy store as a sole proprietorship, then becoming an LLC can help you take the next step in your growth journey. It can be helpful to have some support as you go through this process, such as by forming an ongoing partnership with one of the services covered above.

It will also be important to research the specific benefits offered in your state to virtual businesses that are registered as LLCs. It’s possible that another entity type could be a better fit for your goals, depending on how your state treats a sole proprietorship and corporation.

Conclusion

The bottom line is that turning your Etsy store into an LLC may help you save money on taxes while also improving your personal liability protection. You can create this type of business entity on your own or hire a professional formation service to provide more in-depth insight into the process as it relates to your store. Either way, we wish you all the best with your Etsy store moving forward.

Should I turn my Etsy business into an LLC?

Turning your Etsy store into an LLC can be a good idea if you want to protect your personal assets and enjoy an improved tax situation. But the specific benefits and drawbacks of the business structure can vary on a state-by-state basis.

How much does it cost to form an Etsy LLC?

The cost of forming an LLC for your Etsy store depends on the state that you’re located in. Each state sets its own filing fees, and some have ongoing annual reporting fees to consider as well. These can be under $50 or more than $200.

Are there any ongoing LLC fees for Etsy stores?

Some states have ongoing annual reporting fees that LLCs need to pay in order to remain registered in the state. You will have to research whether your state has these or not to answer this question. It may also be possible to register in a state that doesn’t have any ongoing fees if your business operates entirely online.

How can I get help with creating an LLC for my Etsy shop?

If you don’t want to have to go through the LLC formation process alone, then consider hiring a professional formation service, such as ZenBusiness or Northwest Registered Agent. They can guide you through the process so you don’t have to figure everything out on your own.