Starting my cake business from home under the new Florida Cottage Food laws. What are the benefits of forming an LLC? What do most people do? I heard that as an LLC you are considered self employed and subject to a 15% rate?
You owe self-employment tax (~15%, covering paying into Social Security and Medicare) regardless of how your business is structured.
Forming an LLC only provides another layer of protection from liability, it does not change how you are taxed. If you create an LLC and do not elect a specific form of taxation, you will automatically be treated as a sole prop by the IRS. There are ways to reduce your self-employment tax if you elect to be taxed as an S-corporation, talk to your CPA for more details.
Fees for an LLC are pretty low in FL, it only costs $155 to create and $139 per year.
I think an LLC is the most beneficial as it keeps your personal assets from being lost with a lawsuit. Sole proprietor makes you solely responsible for any and all lawsuits, your personal items, house, vehicles can be lost. You can go to the Fl. website and do your LLC, be sure that you turn in your yearly reports as they ask for otherwise you lose your LLC and the fines to get them reinstated are high. I suggest contacting Traveler's Insurance for a liability policy, they are very reasonable.
If you do run an LLC you'll want to be very careful to keep the business separate by maintaining separate bank accounts, not co-mingling personal and business assets, and making a large enough initial investment in the business account so it can stay solvent. Otherwise, you risk losing the LLC liability protection.