LLC vs. Sole Proprietorship Tax Comparison
Many new business owners skip the LLC step to avoid paperwork. But a single-member LLC is a disregarded entity for federal taxes — it files the same Schedule C as a sole proprietor. The real differences are liability protection, annual state fees, and credibility. This tool compares both options with your actual income and state in mind.
| Factor | Sole Prop | Single-Member LLC |
|---|---|---|
| Federal Tax Treatment | Schedule C | Schedule C (same) |
| Self-Employment Tax | ||
| Federal Income Tax | ||
| Formation Cost (one-time) | $0 | |
| Annual State Fees | $0 | |
| Personal Liability Protection | None | Yes |
| Business Credit Separation | No | Yes |
| Credibility / Professionalism | Low | Higher |
| 5-Year Total Extra Cost (LLC) | — |