TL;DR version: Unless you know what you are doing, choose a single-member LLC for your new business entity.

The key thing to remember is that incorporating or adding partners makes everything more complex. If you form an actual corporation, add a partner to your LLC (even if it’s a spouse or other family member), or elect for your LLC to be taxed as a corporation, you are triggering a change that requires additional work and expense.

• All corporations and partnerships require you to file a separate business tax return. Most of these are due March 15, a full month before the regular income tax filing deadline. Your tax prep bill may double (or more) if you have to file one of these returns. Many CPAs won’t file a business return for less than $1000.

• You really need to have solid bookkeeping, including a balance sheet that makes sense. In particular, if you have partners, your bookkeeping needs to accurately track and report partner contributions and distributions.

• If you have one or more business partners, it is imperative that you have a solid partnership agreement in place. I do recommend consulting with a lawyer to write one. I’ve seen businesses self-destruct because there was a conflict and either there was no agreement or what they had was poorly written. The agreement needs to include a clear process for resolving disputes in the absence of a majority and a way for partners to exit in a financially reasonable way, for example. Don’t skip this step, even especially if your partners are family members.

You might wonder, if there are so many drawbacks to incorporating or adding partners, why does anyone have them at all? There are plenty of reasons why they make sense in some situations, and they can offer tax benefits that offset the additional cost. Luckily, LLCs are easy to “evolve.” You can always add members to your LLC later, or you can opt in to being taxed as a corporation. None of those situations will even arise until your LLC is making enough money or has enough resources to cover the extra expense and compliance burden.

This is why I always recommend people just start simple, with a single-member LLC. You don’t need to pay a lawyer or sign up for some online service - just do a simple online search for “how to form an LLC in [insert your state here]”, then scroll down to the first search result that is a legitimate state website with a .gov domain name. Every state is a bit different, but these days every state should have a simple online registration option. Costs will vary, but it’s probably less than $100 for filing fees.

For taxes, you just need to provide a report summing up your income and expenses, and your business profits (or losses) will be reported on a schedule C on your personal income tax return, due in April with everything else.