LLC vs Sole Proprietorship: How Taxes Compare (2026)

Skip the mathS corp tax calculator 2026

Many freelancers and gig workers hear that they should “get an LLC for the tax benefits”. For one owner, there are no tax benefits by default. An LLC is a legal structure set up by your state; the IRS ignores it unless you choose otherwise.

The short answer: a single-member LLC is taxed exactly like a sole proprietorship: same Schedule C, same 15.3 % self-employment tax, same income tax. An LLC protects personal assets from some business debts and costs a state fee every year. Taxes only change if the LLC elects S corp status, which usually starts to pay off around $60,000 to $80,000 of profit.

How each one is taxed

	Sole proprietorship	Single-member LLC (default)	LLC taxed as S corp
IRS treatment	You and the business are the same	“Disregarded entity”: same as sole prop	Separate corporation
Tax form	Schedule C with Form 1040	Schedule C with Form 1040	Form 1120-S, plus a W-2 for you
Self-employment tax	15.3 % on 92.35 % of profit	Same	Payroll tax only on your salary
20 % QBI deduction	Yes	Yes	Yes, on profit after salary
Quarterly estimated tax	Yes	Yes	Withholding on salary, estimates on the rest
State fee	Usually none (maybe a DBA filing)	Formation fee plus yearly fee	Same as LLC, plus payroll costs

A sole proprietorship is what you are automatically when you work for yourself. No filing is needed. A default single-member LLC fills in the same lines on the same forms.

What an LLC does change

Liability. An LLC separates business debts and lawsuits from your personal assets, as long as you keep business money separate. It does not protect you from your own negligence. If you cause a crash while delivering, your auto insurance matters much more than an LLC.

Cost. States charge to form an LLC, from about $35 to $500, and most charge a yearly report fee. California charges at least $800 a year in franchise tax. Those fees are deductible business expenses, but they are still money out of your pocket.

Paperwork. You need a separate business bank account, and should keep business and personal spending apart. Mixing them can weaken the liability protection.

Name and tax number. You can get a free EIN from the IRS and give it to clients instead of your Social Security number. Gig apps usually still pay you as an individual.

When an S corp election saves tax

An LLC (or a corporation) can file Form 2553 to be taxed as an S corp. You then pay yourself a reasonable salary through payroll. Payroll tax (7.65 % from you and 7.65 % from the company) applies only to that salary. The rest of the profit comes to you without self-employment tax.

The catch is the extra cost: payroll software, a separate business tax return and often an accountant, commonly $1,500 to $3,000 a year. The salary also has to be reasonable for the work; the IRS can treat a salary that is too low as a way to avoid tax.

Rough guide for a single filer:

Under $50,000 of profit: an S corp rarely pays off after its costs.
$60,000 to $80,000: it can start to save money, depending on the salary and your state.
Over $100,000: the savings are often several thousand dollars a year.

Try your own numbers with the S corp tax calculator. It compares the S corp with a sole proprietorship and includes the extra costs.

Which one for you

Starting out, or a side gig: stay a sole proprietor. Track expenses, save for tax and pay quarterly. You can form an LLC later.
Clients or contracts with real risk: an LLC can make sense for the liability protection, together with business insurance. Do not expect it to lower your tax.
Steady profit above about $60,000 to $80,000: look at an LLC with an S corp election, and run the numbers with a tax professional first.

This page is general information, not legal or tax advice. LLC rules and fees depend on your state; for your situation, ask an attorney or a tax professional.

See what you owe today with the self-employment tax calculator, and how much to put aside from each payment in how much to save for taxes on 1099 income.

Questions

Do I need an LLC to drive for DoorDash or Uber?

No. Gig apps pay you as an individual under your Social Security number. An LLC is optional, and for one owner it does not change your tax unless you also elect S corp status.

Does an LLC lower self-employment tax?

Not by itself. A single-member LLC pays the same 15.3 % self-employment tax as a sole proprietor. Only an S corp election can lower it, and only when profit is high enough to pay a reasonable salary and still have money left over.

Do I need a separate EIN for my LLC?

A single-member LLC with no employees can use the owner's Social Security number for income tax. Many owners still get a free EIN from the IRS so they do not have to give clients their SSN, and banks usually ask for one to open a business account.

Does my LLC have to file a beneficial ownership (BOI) report?

Under FinCEN's interim final rule of March 26, 2025, companies formed in the United States and their U.S. owners do not have to file BOI reports. Check FinCEN's site for any later change.

Can I switch from sole proprietor to LLC later?

Yes. You form the LLC with your state, open a business bank account and update the name and tax number with clients and platforms (a new W-9). Your tax return stays the same for a single-member LLC.

Sources

Last updated November 4, 2026. Figures for tax year 2026 from IRS and SSA sources.