You definitely should set up as an LLC, for two reasons: first and foremost, to protect your personal assets (e.g. home, bank accounts, etc.) and yourselves from any debts of or judgments against the company; and second, while you should confirm this with your tax preparer, generally, having a separate LLC makes it easier to deduct business expenses on taxes.As to taxes: an LLC can be set up as a pass-through entity, which means that there is no double taxation: the LLC's profit and/or loss "drops" or "passes" through the LLC directly to your own tax returns. You elect partnership, not corporate, tax treatment when you create the LLC.