LLC vs sole proprietor: which one should a freelancer pick?

If you freelance in the US and haven't filed anything with your state, you're already a sole proprietor. The question is whether to add an LLC on top. This post compares the two on liability, taxes and cost, with three common profiles. It's part of our business setup series, and the first-month steps are in the 30-day checklist for a new freelance business.

The short comparison

What an LLC protects, and what it doesn't

The SBA describes the LLC's main benefit as limited liability: if the business owes money or gets sued over a contract, your house and personal savings generally aren't on the line. For a freelancer, that matters most when the business signs leases, takes on debt, hires subcontractors or signs contracts with large dollar amounts.

It covers less than many freelancers expect. If a client says your own work caused the loss (a bug you wrote, an ad you placed, advice you gave), the claim is generally about what you did, not only about the company, and in many states an LLC member can still be held personally responsible for their own negligence. Professional liability (errors and omissions) insurance is what usually pays those claims. Courts can also ignore the LLC if you treat its money as yours, which is why a separate business bank account is part of keeping the protection. How far the shield reaches depends on your state's LLC law, so this is a question for a local attorney.

Taxes: the same by default

The IRS treats a single-member LLC as a disregarded entity unless you choose otherwise. You report its profit on Schedule C, exactly like a sole proprietor, and you pay self-employment tax on it: for 2026, 12.4% Social Security on net earnings up to $184,500 plus 2.9% Medicare with no cap. The SBA says the same thing: LLC owners are self-employed for tax purposes. Our post on whether an LLC saves taxes runs the numbers on $80,000 of profit, and the self-employment tax calculator shows your own figure.

The tax picture only changes if the LLC elects to be taxed as an S corporation, which requires running payroll and paying yourself a reasonable salary. That's a separate decision with its own break-even point, covered in when a freelancer should elect S corp.

What each one costs over 3 years

California is the expensive case: its $800 annual tax is due even in a year with no income, until you cancel the LLC, and the first-year exemption that existed for 2021 to 2023 has ended. Most states charge far less each year, but the formation and report fees differ enough that the only reliable figure is your Secretary of State's fee page. Write it into the table before you decide.

Three freelancer profiles

How to decide

If you form an LLC

1. File articles of organization with your Secretary of State, or have a formation service do it for the same state fee plus theirs.
2. Name a registered agent: yourself at an in-state address, or a paid service if you want your home address off public records.
3. Get an EIN if you'll hire or your bank asks for one; a single-member LLC with no employees doesn't need one for federal income tax (see do freelancers need an EIN?).
4. Open a bank account in the LLC's name and run every business payment through it.
5. Send clients an updated W-9 and put the state's annual report or tax date in your calendar.

Where SoloWOS fits

SoloWOS doesn't form companies or give legal advice. Whichever structure you pick, you can send invoices clients pay by card under your business name and log business expenses with receipts to see your monthly profit and a tax set-aside estimate.

This is general information about US federal rules and California's LLC tax as of October 23, 2026, not legal or tax advice. LLC liability rules come from each state's law; ask an attorney in your state before relying on them, and a CPA or enrolled agent about the tax side.