Helpful Toolbox

Sole Proprietor vs LLC Calculator

Deciding between staying a sole proprietor and forming an LLC? Enter your annual profit and your state fees to compare the true yearly cost of each path — including self-employment tax and an optional S-corp savings estimate — and see exactly when an LLC starts paying for itself. Everything updates instantly and privately in your browser.

📖 How it works & FAQ

Sole proprietorship vs LLC: what really changes

For a one-owner business, the IRS taxes a sole proprietorship and a single-member LLC exactly the same way: all profit flows to your personal return and gets hit with self-employment tax (15.3% on 92.35% of profit — both editable above). Forming an LLC does not, by itself, lower your taxes at all. It adds costs: a state formation fee, an annual report or franchise fee, and often a registered agent service. What an LLC can unlock is an S-corp election, which lets you split profit into salary and distributions and skip self-employment tax on the distribution share. That potential saving is the editable estimate in the last field.

This calculator totals the first-year and ongoing cost of each path and tells you when — if ever — the LLC starts saving money on these numbers.

How to use it

  1. Enter your expected annual profit (revenue minus expenses).
  2. Look up your state LLC formation fee and annual or franchise fee and enter them — they range from about $35 to $500 to form and $0 to $800 per year.
  3. Add a registered agent fee, or set it to $0 if you will act as your own agent.
  4. If you plan an S-corp election, enter a rough annual tax saving; leave it at $0 to compare pure fees.
  5. Read the year-1 totals, ongoing yearly costs, and the break-even note.

Estimates only — not professional, financial, tax, or legal advice; rates & fees vary by state and situation.

FAQ

Does an LLC lower my taxes by itself?
No. A single-member LLC is a "disregarded entity": same Schedule C, same self-employment tax. Savings only appear if you elect S-corp taxation and pay yourself a reasonable salary.
What does an LLC typically cost?
Formation runs roughly $35–$500 depending on the state, annual or franchise fees $0–$800 per year (California is $800), and registered agent services $0–$300 per year.
Why form an LLC if it costs more?
Liability protection. An LLC separates business debts and lawsuits from your personal assets — value this calculator cannot price.
When does the S-corp route make sense?
A common rule of thumb is $40,000–$60,000+ of steady profit, because payroll and extra tax-prep costs (often $1,000–$2,000 per year) eat into the savings. Subtract those from your savings estimate for a fair comparison.