If I setup an online business, do I need to incorp or file for an LLC?

Can I just do business online w/o the hassel of setting up a corporate type entity? I plan to sell subcriptions to my content site.

Also, if I do have to setup a corp type entity, would it be worth the hassel if the amount I plan to earn is so meger (less than 5k)? Are all of the eBay sellers setup as businesses? What is the rule regarding online businesses, earned income from it, and taxes? Or is there even a rule at all?

In addition, I wouldn't be looking to setup a sole proprietorship if I did have to go thru the hassle of setting up a business, reason being is that I would look to create a business that had some protection against liability.

A lot of small/micro businesses can skip the incorporation process and function just fine as sole proprietorships. This is b/c generally, low income translates to low potential liabilities -- and if there isn't much liability to worry about, why go the expense and hassle of incorporating a corporation, or organizing an LLC? There are the initial setup costs, and then recurring annual costs because you may have to file a separate business return and will almost certainly have to file an annual report with the state (with a filing fee). So the costs may outweigh the benefit.

This may be true for you. But first, consider if your online business is a special case -- maybe in your case there is low income but potentially high liabilities. This is true in certain industries. For example, I live in a state where lots of folks sell roadside fireworks every 4th of July. You can make a little money off it, not a ton.... but if any of the products ever malfunctioned, there could be some big liability. To protect their personal assets, these sellers either need to incorporate/organize, or buy insurance. (Most of them by insurance.)

Is your business like selling fireworks? You said you're going to have content.... does that raise the possibility of a defamation suit? I don't know, you have to be the judge of that. Even if so, you may be able to get insurance (in particular, errors and omissions insurance, known as "E&O") to cover it.

If I were you, I guess I'd see how much insurance costs. And if it's not available, or is cost prohibitive, I'd set up an entity.

One last thing -- websites that are run through an entity tend to have more credibility.

P.S. The previous answer was right about starting at the secretary of state -- you can generally find articles of incorporation (corp) or articles of organization (LLC) there. But what they won't have, are bylaws (corp) or operating agreements (LLC) or resolutions (applicable to both). For those, Google "[your state] bylaws" or "[your state] operating agreement" and see what you can get for free. Do the same for "resolutions shareholders" (corp) or "resolutions member" (LLC). I hope I don't get in trouble for telling you to Google something, on Yahoo Answers.

P.P.S. There is NO rule regarding online businesses and having to set up an entity -- it's just a decision entrepreneurs make based on a lot of factors, including the above.

P.P.P.S. A sole prop requires no filing at all, you just set up shop and start making sales -- the business is indistinguishable from the individual, and income is reported on your personal tax return, although you do get to write off legitimate business expenses.

no idea but ebay rules and congratulations :) lol

You can just be a sole proprietorship. Then file for Schedule C in your taxes for all your expenses and income, including cost of goods sold.

To help you understand the advantages and disadvantages of sole proprietorship, partnerships and corporations, read the article "Choosing Your Legal Structure" http://www.powerhomebiz.com/vol3/legalst...

This would depend on several factors. Your income, being one of them. I believe that if you make under $7,000 per year you are exempt from Federal taxes, I'm not sure of the exact number, but I think that's close. If your only income was $5,000, you probably wouldn't need to worry about it. If you have combined income higher than the exempt level then you may want to look at setting up a business. Like one of the other answers said, you could just report your income, and pay taxes on that. If you want to protect your assets, though, I would look at an LLC for a small business such as this. They provide the benefits of asset liability protection like a corporation, but the taxes would be lower in your situation. Go to any of your local bookstores, and they should have a business section with books about how to set up LLC's, or probably a better place to start would be to look at the website for the Secretary of State for your state. I know here in Idaho, that's a good resource for all that you need to get an LLC started. LLC's are relatively inexpensive and simple to set up, so you probably don't even need an attorney if your are doing the business by yourself.