Converting side hustle to LLC - when does it make sense?

I have been selling handmade jewelry on Etsy for three years. Last year I made about $35K in revenue and around $22K in profit after materials and fees. I file everything on Schedule C right now as a sole proprietor.

A friend who also sells on Etsy told me I should form an LLC for “protection.” But when I looked into it, my state (Georgia) charges $100 to file and $50 for the annual registration. Plus I would need a new bank account and possibly a new EIN. Is this worth it at my income level, or is it more of a thing for bigger businesses?

The question is not really about income level — it is about liability exposure. An LLC creates a legal separation between your personal assets and your business. If someone claims your jewelry caused an allergic reaction or injury, and you are operating as a sole proprietor, they can go after your personal bank accounts, your car, even your house.

With an LLC, your personal assets are generally shielded (assuming you maintain the corporate veil by keeping business and personal finances separate, etc.). At $22K profit with a physical product that people wear on their bodies, I would say the liability argument alone makes the LLC worthwhile.

From a tax perspective, a single-member LLC is a “disregarded entity” by default. That means the IRS ignores it and you still file on Schedule C exactly as you do now. There is no change to your tax situation unless you elect S-corp or C-corp treatment. So the tax complexity is minimal.

The $100 filing fee and $50 annual fee in Georgia is quite affordable as states go. You would need a separate bank account, which is free at most banks, and you should get a new EIN (also free, takes five minutes on the IRS website). All in, you are looking at maybe $200 for the first year and $50 annually after that. That is cheap insurance.

I formed my LLC when I hit about $15K in sales. For me it was not about the money, it was about taking the business seriously and having the legal protection. I sell candles so there is a fire risk angle that made me nervous operating without an LLC fwiw.

The separate bank account is actually great for bookkeeping too. Before I had the LLC, I was constantly trying to separate personal and business transactions at tax time. Now everything business-related goes through one account and it makes life so much easier.

The liability angle is a good point I had not thought about. People do wear my jewelry and I use nickel-free materials but you never know with allergies. I think I will go ahead and file imo.

Quick follow-up: should I form the LLC in Georgia where I live, or is there an advantage to forming in another state like Delaware or Wyoming?

For a small business operating in one state, form in the state where you live and operate. If you form in Delaware or Wyoming but run the business from Georgia, you would need to register as a foreign LLC in Georgia anyway. That means you are paying filing fees and annual fees in two states for no meaningful benefit.

The Delaware and Wyoming advantages (specialized courts, privacy, etc.) are mainly relevant for larger businesses, companies seeking outside investment, or people with specific privacy concerns. For an Etsy jewelry business, Georgia is the right choice.

One more thing worth mentioning — get business insurance too. An LLC is great but it is not a magic shield. Courts can pierce the corporate veil if you do not maintain proper separation, and product liability claims can be aggressive. A general liability policy for a small Etsy shop is usually $300–$500 a year. LLC plus insurance is the real combo for protection imo.