There is no need to create a "business"--i.e. a legal or business entity, like an LLC or corporation--so you can just claim the extra income under your taxes. There are reasons to create a business entity, however: having an LLC (a "limited liability company") or a corporation will help protect the rest of your income or assets from most business-related debts or lawsuits. For exampe, say you breach a contract by not being able to deliver a design on time--if you had an LLC, the customer could only sue the LLC, not you personally. Or if you sold a product which injured someone somehow, without an LLC or corporation, your personal assets are at risk--but if you had an LLC, only the LLC's assets are vulnterable. Etc. The best choice for what you describe would be a sole member ("member" is "owner" in this context) LLC with partnership (not corporate) tax treatment, which means there is no separate taxation or tax return; rather, the profit drops to and is taxed as part of your income. The state doesn't really matter: you can set it up in your state of residence, for example. Forming an LLC is easy: any attorney who does business law or matters could create one for you very quickly and affordable, or you could set it up yourself using instructions found on your state's secretary of state website. Good luck.