Personal Use Drone
A drone used personally needs to be registered with the FAA and a $5 fee paid.
For personal use you still have to follow the FAA limitations on where and when you can fly your drone.
Commercial Drone Use
A drone used to earn a fee has to be registered under FAA part 107 and the pilot has to have passed the FAA drone pilot test. Commercial drone pilots can earn fees for a side business or in some cases a full time business charging others for drone missions to take pictures, do inspections, provide security or other services. Once a drone pilot is properly credentialed any fee earned should be reported on a personal tax return Schedule C annually but can be offset by reasonable business expenses.
Fictitious Business Name
In the US most states have a fictitious name registration process if you bill your drone customer under a business name other than your own name. In Pennsylvania the fee is $70 and can be done by the business owner, a hired attorney or a service like Legal Zoom. The business is still a sole proprietorship but functioning as a business under your new registered name.
Limited Liability Company (LLC)
A LLC is a separate legal entity and a popular way to set up legal protection for a business by separating the business into a checkbook functioning separately as a LLC which can protect the business owner from creditors, legal claims and upset customers. LLCs are created in the state in which you live and operate your drone business via a registration and state fee done by the business owner, a hired attorney or a service like Legal Zoom.
LLCs can be disregarded for tax purposes and you can still file a Schedule C with your personal return. Some states require an extra filing to pay an annual LLC fee. If your drone business is full time or has partners then the LLC may elect to be taxed as a partnership with each member getting a K-1 form to include with their personal return the annual tax results of the drone business. A successful drone business may elect S corporation status and have payroll for owners and employees. The owners will still receive a K-1 at year end for the annual tax results of the drone business.
As mentioned a LLC can be formed by a service or by yourself but if legal liability protection is the reason for forming the LLC investigating drone attorneys and their services during the LLC formation process is appropriate. If you google drone attorney you will notice a lot of advertising for “If your in a drone accident contact us” which indicates there is legal litigation resulting from drone accidents regularly occurring. The FAA also issues violations and fines for incorrect drone use. Many companies and events use security features to guard against unwanted drone incursions. A good local attorney can protect you against most of these issues should they arise plus insurance is an option as well. There are several attorneys that specialize in drone issues but they would most likely not be local to you.
Drone Side Hustle
A part time drone business may not require the protection of an LLC or be worth the cost to the drone business owner. Additional drone insurance or using a drone service or association with drone insurance may be an alternative to creating a LLC. The drone pilot may still be personally responsible in any accident so an LLC is only one part of a legal liability protection plan.
Delaware or Nevada LLC
If you form LLCs in these states or other foreign states you will still need to register the LLC in you home state as a foreign LLC. You will also have to maintain an address in Delaware or Nevada most likely thru a registered agent. Normally unless you are operating full time in many states a foreign LLC in Delaware or Nevada may not be worth the extra costs.
If you use a service like Legal Zoom obtaining a registered agent will be highly encouraged during the registration process. You can be your own registered agent and save the annual cost because the only service provided by a registered agent is an instate address for official LLC notices to be received. Your own address can serve this purpose for no annual cost.