Should a solopreneur form an LLC?
Sole proprietorship or single-member LLC? Liability, taxes, costs and paperwork compared for solopreneurs, with IRS sources.
Most solopreneurs start as sole proprietors because it's automatic and free. An LLC puts a legal wall between business debts and your personal assets, in exchange for a state fee and some paperwork.
Sole proprietor vs single-member LLC
| Sole proprietor | Single-member LLC | |
|---|---|---|
| Setup | Automatic, plus local licences | State filing + fee |
| Liability | Personally liable | Generally limited, if you keep finances separate |
| Federal tax (default) | Schedule C | Same: a "disregarded entity" (IRS) |
| Ongoing | Minimal | Annual state fee or report |
When an LLC is worth it
- Clients, landlords or platforms require it.
- Your work carries liability risk (physical services, advice, client property).
- You want to contract in a business name and keep finances cleanly separate.
What an LLC doesn't do
- It doesn't cut taxes by default. An S-corp election is a separate decision to make with a tax professional.
- It doesn't shield you from your own professional negligence. Insurance covers that.
Costs: LLC cost by state · sole proprietorship vs LLC for contractors
General information, not legal advice. Legal reviewer: to be added.
Costs in specific states: Colorado · Delaware.
Everything in Legal
Sources
- IRS irs.gov
Checked 21 Oct 2026. Spotted an error? Tell us.
Update history
- : first published; figures checked against the sources listed.