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Level 1
posted Aug 30, 2023 11:46:47 AM

Sole proprietor vs LLC

What are the pros and cons for choosing to be a sole proprietor vs LLC ? 


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1 Replies
Employee Tax Expert
Aug 30, 2023 11:54:33 AM

Hello and thank you so much for your question.  The pros and cons are as follows:

  1. Sole Proprietorship - Is an individual who owns a business but is not a legally separate entity from the business. 
    • Reports income on Form 1040  Schedule C. 
    • It is personal liable for any debts or financial claims against the business.
    • Pros-Most accessible type of business to start. 
    • Cons-Personally liable for business debts or legal liabilities and Need to pay SE Taxes
  2. Single-Member LLC - Single-member LLCs with only one owner.
    • Reports income tax on form 1040 Schedule C unless it files Form 8832 and elects to be treated as a Corporation. 
    • It provides the owner with Limited Liability Protection.  
    • Pros-Single-Member LLC are taxed like Sole Prop and it does have the limited liability protection.
    • Cons-Single-Member LLC owners need to pay Self-employment taxes

I hope this answered your questions.  Have a wonderful day