LLC vs. Sole Proprietorship: Which Is Right for Your Business?

See how liability, taxes, and paperwork compare, then file your Schedule C with confidence using TaxAct.

Quick answer

A sole proprietorship is the default when you run a business by yourself, there is nothing to file to create one. An LLC (limited liability company) is a legal structure you register with your state that separates your personal assets from your business.

Here is the part that surprises most owners: by default they are taxed the same way. A single-member LLC and a sole proprietor both report business income on Schedule C with their personal return. The real difference is liability protection, not taxes.

LLC vs. sole proprietorship at a glance

Feature	Sole Proprietorship	LLC
What it is	The default when you run a business yourself. Nothing to file.	A legal structure you register with your state.
Liability protection	No. Personal assets are exposed.	Yes. Separates personal and business assets.
How it's taxed	Pass-through on Schedule C with your 1040.	Single-member: Schedule C. Multi-member: Form 1065.
Setup & cost	Free. Nothing to file.	Low state filing fee, quick setup.
Best for	Brand-new or very small side businesses.	Owners who want liability protection and room to grow.

Feature

Sole Proprietorship

LLC

What it is

The default when you run a business yourself. Nothing to file.

A legal structure you register with your state.

Liability protection

No. Personal assets are exposed.

Yes. Separates personal and business assets.

How it's taxed

Pass-through on Schedule C with your 1040.

Single-member: Schedule C. Multi-member: Form 1065.

Setup & cost

Free. Nothing to file.

Low state filing fee, quick setup.

Best for

Brand-new or very small side businesses.

Owners who want liability protection and room to grow.

File your small business taxes with confidence

Sole proprietor or LLC, TaxAct guides you through your Schedule C step by step, with a 100% Accuracy Guarantee.

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Frequently Asked Questions

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