When should I switch my side hustle to a legal company (LLC or C-Corp)?

I always recommend engaging a LLC early on. It limits your personal liability and can provide tax benefits. I setup a LLC that I use as the legal owner for all of my side hustles. That way I don’t have to set one up every project.

Check out www.lawavocado.com

Congrats on your success so far! I had no idea you could make that much money with code themes. I've seen Dracula in the VS Code marketplace. What's the difference between the free and pro versions? It's not obvious to me on your website – maybe you should explain it – or maybe I just missed it.

Anyway, to answer your question, I would personally create a legal entity when you get to a point where you feel confident that your side project is going to be a permanent, ongoing business (ie. it's sustainable and you want to run it for years) and that the revenues justify the expense. In California, the LLC annual fee is $800.

If I were in your shoes, I think you have enough revenue to justify creating an LLC.

Also, I would recommend LLC over C-Corp if your plan is to run the business on your own. C-Corp has double taxation and stricter ongoing legal formalities (e.g. holding annual shareholder meetings that need to be documented with minutes, adopting and maintaining updated bylaws, etc.) I think you should only consider C-Corp if you want to raise VC money or have plans to go IPO since VCs don't invest in LLCs (except on rare occasions).

I'm a bit new to this myself, but what pushed me to incorporate was how I felt about my efforts and how far I saw myself taking my side project. Was it just a fun hobby? Or was I interested in seeing how far the rabbit hole went?

I was more interested in the latter, so that's when I decided to incorporate.

PS. Great work w/ Dracula! Very cool to see its evolution over the years.