Any tax benefits to setting up a home-based LLC for side hustle?

Wait, I thought the whole point of an LLC was tax benefits? If it's taxed the same as being a sole proprietor what's the advantage? Also do you have to do anything special to be "taxed as an S-Corporation" like you mentioned?

The primary purpose of an LLC is liability protection, not tax benefits. It creates a legal separation between your personal assets and business liabilities, so if someone sues your business, they generally can't go after your personal home, savings, etc. Many people confuse this with tax advantages. To be taxed as an S-Corporation, you'd file Form 2553 with the IRS. This becomes advantageous when you're making enough that you can pay yourself a "reasonable salary" and take the rest as distributions, which aren't subject to self-employment taxes. But with $12,000 in income, the additional costs of S-Corp compliance (payroll, more complex tax filings) probably outweigh the benefits for now.

How does the tool actually work? Can it tell me if I'm missing deductions from previous years? I've been doing photography on the side for 3 years but I'm worried I've been overpaying.

Sounds kinda sketchy. How does it know what business structure is best without knowing all the details of your financial situation and liability risks? Tax software already finds deductions.

The tool works by analyzing your income sources, expense patterns, and business activities. You upload documents like bank statements, receipts, and past tax returns, and it identifies patterns in your spending that qualify as business deductions. And yes, it can definitely help identify missed deductions from previous years that might qualify for amended returns. It's actually very different from standard tax software because it's specifically designed for small business owners and side hustlers. It's not just finding standard deductions - it's analyzing your specific business activities and helping you understand which expenses are legitimately deductible in your situation. It also helps you understand the pros and cons of different business structures based on your specific income levels and growth plans.

I don't get it - how can they get you through to the IRS faster than calling yourself? The IRS phone system is a nightmare but I doubt anyone has a magic "skip the line" button.

Sounds like BS to me. The IRS doesn't give priority to certain callers. If there was really a way to skip the line, everyone would be using it and it wouldn't work anymore.

They don't have a "skip the line" button - they use an automated system that continuously calls the IRS and navigates the phone tree for you. When they finally get through, they connect the call to your phone. It's the same wait time as if you were doing it yourself, but their system does the waiting instead of you having to sit on hold for hours. The IRS absolutely doesn't give priority to certain callers - Claimyr just automates the painful part of waiting on hold. Think of it like having a digital assistant that sits on hold for you and calls you when a human finally answers. I was skeptical at first too, but when I got a call back with an actual IRS agent on the line after spending weeks trying unsuccessfully myself, I was convinced.

Do all states have annual fees for LLCs? That might be a dealbreaker for me since my side gig only makes about 8k a year.

Not all states have the same fee structure. Some have low or no annual fees, while others like California are expensive. For example, Wyoming, New Mexico, and Arizona have very low annual fees under $100. If you're only making about $8k a year, you definitely need to calculate if the fees make sense for your situation. In many cases for smaller side hustles, operating as a sole proprietor and maximizing your eligible deductions on Schedule C is the most cost-effective approach. Just make sure you have good records of all business expenses and consider getting business insurance for liability protection instead of relying on an LLC structure.

That's interesting - wouldn't both show up on the same line of your tax return though? Schedule C income is Schedule C income whether it's from an LLC or sole prop, right?