Compare taxes, formation costs, and annual savings between Sole Proprietorship, LLC, and S-Corp election — customized for your state.
Based on your numbers, an LLC could save you thousands per year. Most formations take under 10 minutes.
Form Your LLC Today →The tax savings from forming an LLC depend on how you choose to have it taxed. By default, a single-member LLC is taxed the same as a sole proprietorship — all net income is subject to both income tax and self-employment tax at 15.3%. The real savings come with S-Corp election, where only your salary is subject to payroll taxes. On $85,000 net income with a $50,000 salary, that is roughly $5,355 in annual savings.
Formation cost alone favors sole proprietorships — they are free to start. LLC filing fees range from $40 to $500 by state, plus potential annual fees. But cost includes liability exposure. A sole proprietorship puts your personal assets at risk. For businesses earning over $40,000 per year, the protection and potential tax savings usually justify the LLC formation cost.
An LLC with S-Corp election generally becomes beneficial above $50,000-60,000 net income. Below that, administrative costs consume the savings. Liability protection may justify an LLC at any income level. Use our Freelance Rate Calculator to ensure your pricing covers these costs.
Yes, you can convert at any time by filing Articles of Organization with your state and getting a new EIN. Most states process within 1-2 weeks. Many owners start as sole proprietors to test an idea, then convert once income justifies it. Ready for more? Try our AI Side Hustle Finder or build a resume with our ATS-Friendly Resume Builder.