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Do You Need an LLC? LLC vs. Sole Proprietor
The short answer: a single-member LLC is taxed exactly like a sole proprietor: same income tax, same self-employment tax. What you get is legal separation between business debts and your personal assets, for a state fee that runs from $0 to about $800 a year depending on your state. It's most worth it when you have real liability risk, sign contracts, have employees or are growing.
What's the same
- Taxes: a single-member LLC files the same Schedule C as a sole proprietor and pays the same self-employment tax (IRS: single-member LLCs).
- Deductions and estimated tax payments work the same way.
- An LLC doesn't save tax on its own. Tax savings come from electing S-corp later, which an LLC can do. See LLC vs. S-corp.
What's different
| Sole proprietor | Single-member LLC | |
|---|---|---|
| Setup | Nothing to file (a DBA if you use a business name) | File with your state |
| Yearly cost | $0 | $0 to about $800 in state fees |
| Business debts and lawsuits | Can reach your personal assets | Generally limited to the business |
| Your own mistakes (professional errors, car accidents) | You're liable | You're still liable |
| Can elect S-corp taxes | No | Yes |
What an LLC costs in the 10 largest states
| State | LLC filing fee | Yearly state fees after |
|---|---|---|
| California | $70 | $800 minimum tax + $20 every 2 years |
| Texas | $300 | $0 for most small LLCs (report still required) |
| Florida | $125 | $138.75 annual report |
| New York | $200 + publication (often several hundred dollars) | $9 every 2 years |
| Pennsylvania | $125 | $7 |
| Illinois | $150 | $75 |
| Ohio | $99 | $0 |
| Georgia | $110 | $60 |
| North Carolina | $125 | $200 |
| Michigan | $50 | $25 |
Checked October 2026. Fees change; confirm on your state's business filing website. A registered agent service adds about $100–$300 a year if you don't act as your own.
Run your own numbers, including a registered agent and any DBA fee you'd skip, in the LLC vs. sole proprietor calculator. It fills in your state's fees.
When an LLC is worth it
- Customers come to your home or you work in theirs
- You sign leases, take on business debt or sign larger contracts
- You hire employees or contractors
- You plan to elect S-corp taxes once profit grows
- Clients or platforms ask you to have one
When staying a sole proprietor is fine
- You're testing a side hustle with little risk
- Your state's yearly fee is a large share of your profit (California's $800 on $10,000 of profit is 8%)
- General liability or professional insurance covers your real risks; many owners buy insurance first, because an LLC doesn't protect you from your own mistakes
Keep the protection working
Use a separate business bank account, sign contracts in the LLC's name, and don't mix personal and business money. Courts can ignore an LLC that's run like a personal account. Then set up how you pay yourself from the LLC.
FAQ
Does an LLC save on taxes?
Not by itself. A single-member LLC is taxed the same as a sole proprietor. Savings come only if the LLC later elects S-corp taxes and profit is high enough.
How much does an LLC cost per year?
State fees range from $0 in states like Ohio and Texas (for most small LLCs) to $800 in California, plus a registered agent if you use one.
Does an LLC protect me from everything?
No. It generally protects personal assets from business debts and claims against the business, but not from your own professional mistakes or negligence. That's what insurance is for.
Can I switch from sole proprietor to LLC later?
Yes. You can form an LLC at any time and move your business into it. You'll usually need a new EIN if you have employees, and to update bank accounts and contracts.
Sources: IRS: single-member LLCs · state business filing sites (checked October 2026). General information for planning, not tax, legal or financial advice.