JayC - 7:44 pm on Dec 16, 2002 (gmt 0)

My question is, should I look into incorporating or setting up an LLC

First off, considering the thread title, you should recognize that whether you need a "business license" is completely separate from whether you are incorporated, and would generally be a local issue. That is, creating a legal entity under which to operate your business and getting any necessary licenses needed to operate that business are two different things.

There's nothing inherently wrong with operating as a sole proprietor using an assumed name or "dba," but a more formalized business structure would probably bring tax advantages and some legal protections.

Each person's situation is quite different; and this is an issue that -- if you aren't comfortable that you have a very strong understanding of it -- it's worth spending some money on consulting with an expert (an accountant experienced in small business formation, in this case).

Will I be required to pay taxes on the site as personal income or will I have to fill out a separate return?

Depends on the form of business you formalize, or whether you do or do not create a separate business entity. If you operate as a sole proprietor, you'll report your business income by filing a Schedule C along with your 1040. With an LLC or an "S" Corp you would generally do the same thing, as that company's profits would "pass through" to you; but an LLC could elect to be treated as a separate entity and so would, like a "C" Corp, file a corporate tax return.