If you'll indulge me another question - Would we need a business entity to clarify that or could we do it as sole proprietors?

@Eric Laro As @Taylor Brugna mentioned, it is ordinary income and yes, you would report the income on Schedule C (assuming you would be a sole proprietor) 

Unrelated to this service but just curious, I believe that I would have to issue a 1099 if the provider is a sole proprietor (rather than a corp of LLC).

I currently work as the sole proprietor for my re-sale business and as a part time cashier at a local store.

I'm a sole proprietor and not a company/corporation.

From a tax perspective, the LLC is a pass through, meaning that your taxed the same as you would if it were held as a sole-proprietor.

Otherwise LLCs are treated as sole proprietors.

That's why I'm looking at entity formation: it's how fully functioning investment enterprises act; not as sole proprietors.  

Check the register of deeds in the county the company operates out of... if it's a DBA (sole proprietor) they'll have the assumed name registered...the SOS will only have records for corps and llc's

I'll comment on the Solo 401k eligibility piece: While you do no necessarily need an LLC to be eligible (you can adopt the plan as a sole proprietor), you do need to have real self-employment.