- A single-member LLC is a disregarded entity by default: for federal income tax it files exactly like a sole proprietorship, on Schedule C and Schedule SE, and pays the same 15.3% self-employment tax.
- What an LLC changes is legal, not tax: the business becomes a separate entity under state law. State filing fees run from $70 to $300 in the six big states we checked, and California adds an $800 annual tax from year one.
- The tax saving people talk about comes from an S corporation election (Form 2553). On our 2026 sums it costs more than it saves at $30,000 of profit and saves about $928 at $60,000 and $2,413 at $90,000 after an assumed $2,000 a year of payroll and filing costs.
- The 2026 Social Security wage base is $184,500, which is why the S corporation saving at $250,000 is smaller than at $180,000.
- An EIN is free from the IRS, and since FinCEN’s final rule of August 11, 2026, US-formed LLCs do not file BOI reports.
This page is for anyone in the US running a business on their own who is deciding between staying a sole proprietor, forming a single-member LLC, or going one step further and having that LLC taxed as an S corporation. It covers the 2026 tax year (returns filed in 2027) and federal rules, plus state formation fees for six large states.
By the end you will know what an LLC does and does not change, what it costs to set up and keep in each of those six states, and, in dollars, when the S corporation election starts to pay for itself at six profit levels from $30,000 to $250,000.
These are worked examples on stated assumptions. This page covers federal employment taxes for a one-owner business with no other wages, and state formation fees. It does not cover state income tax, multi-member LLCs taxed as partnerships, C corporations, or your personal liability in a lawsuit. Speak to a CPA, an enrolled agent or a business attorney before you form an entity or file an election.
What does an LLC change compared with a sole proprietorship?
A sole proprietorship is not something you form: if you sell on your own without registering an entity, you already are one. An LLC is different. The IRS describes it as “a business structure allowed by state statute”, and you create it by filing papers with a state and paying that state’s fees.
Liability: the real reason to form one
The point of an LLC is that the business is a separate legal person. Its contracts and debts are, in principle, the company’s and not yours, so a failed lease or an unpaid supplier is a claim against the company. How strong that separation is depends on your state’s LLC law and on how you run the company.
There are three big gaps. Landlords and lenders often ask small LLC owners for a personal guarantee. An LLC does not shield you from your own professional mistakes. And if you treat company money as your own, a court can be asked to ignore the separation, which is the practical argument for a separate business bank account from day one.
Taxes: by default, nothing changes
The IRS says an LLC with one member “is treated as an entity disregarded as separate from its owner” for income tax, unless it files Form 8832 to be taxed as a corporation. A disregarded LLC owned by an individual reports its income on the owner’s Form 1040: Schedule C for the profit and Schedule SE for self-employment tax. The deadlines are the same as a sole proprietor’s, and you still pay quarterly estimated tax. See our guide to quarterly estimated taxes and the full small-business tax deadlines calendar.
There is one exception worth knowing. For employment tax and certain excise taxes, a single-member LLC “is still considered a separate entity”. If your LLC hires an employee, payroll is run under the LLC’s own name and EIN, not under your Social Security number.
- The business becomes a separate legal entity under state law
- Contracts and accounts are in the company’s name
- You can later elect S corporation or C corporation tax treatment
- Payroll, if you hire, runs under the LLC’s EIN
- Your federal income tax: still Schedule C for a single-member LLC
- Your self-employment tax: still 15.3% on 92.35% of profit
- Your estimated tax deadlines
- Personal guarantees you sign, or liability for your own conduct
What does it cost to form and keep an LLC in the biggest states?
State fees vary far more than most people expect. Here are the filing fee and the recurring cost in six large states, each checked on the state’s own website on October 25, 2026. These are state fees only. They do not include a registered agent service, a lawyer or any formation company’s markup.
| State | Formation fee | Recurring state cost | Watch for |
|---|---|---|---|
| California | $70 | $800 annual LLC tax (Franchise Tax Board); $20 Statement of Information every two years | The $800 is due from the first year, by the 15th day of the 4th month. An extra LLC fee starts at $900 once total income reaches $250,000. |
| Texas | $300 | Annual franchise tax report, due May 15; no tax due at or below $2,650,000 of revenue (2026 and 2027 reports) | Below the threshold you still file a Public Information Report or Ownership Information Report. |
| Florida | $125 | $138.75 annual report, filed online January 1 to May 1 | A $400 late fee is added after May 1, and the state says it cannot be waived. |
| New York | $200 | $9 biennial statement every two years | Publication: notices in two newspapers for six consecutive weeks within 120 days, then a $50 Certificate of Publication. Newspaper charges come on top. |
| Illinois | $150 | $75 annual report | Due before the first day of the LLC’s anniversary month. |
| Delaware | $110 | $400 annual tax, due June 1; no annual report | A $200 penalty plus 1.5% a month for paying late. |
California deserves a closer look. The Franchise Tax Board says every LLC “doing business or organized in California must pay an annual tax of $800.” There was a first-year exemption, but it covered only tax years beginning in 2021, 2022 and 2023. An LLC formed in California today therefore pays the $70 filing fee, the $800 annual tax and the $20 Statement of Information in its first year: $890 before any professional help.
New York’s publication rule is the other surprise. The Department of State says failing to publish and file the Certificate of Publication within 120 days suspends the LLC’s authority to carry on business. The county clerk designates the newspapers, and their charges vary by county, so a New York LLC usually costs far more than the $200 filing fee.
A Delaware LLC that does business in your home state usually has to register there as a foreign LLC too: a second set of fees and filings on top of Delaware’s $400 annual tax. Check your home state’s foreign registration rules before you choose.
When does an S corporation election start to make sense?
An S corporation election changes how the LLC is taxed, not what it is. The LLC files Form 2553 and, as the IRS instructions explain, is then treated as a corporation without needing a separate Form 8832. From then on you are an employee of your own company. You pay yourself a salary through payroll, and you take the remaining profit as distributions.
The saving comes from one place. A sole proprietor pays self-employment tax on 92.35% of all profit; an S corporation shareholder-employee pays Social Security and Medicare tax on the salary, not on distributions. The catch: the salary has to be reasonable.
What does “reasonable compensation” mean?
The IRS says an S corporation must pay “reasonable compensation to a shareholder-employee” for their services before it makes non-wage distributions, and that it can reclassify distributions as wages. The factors it lists include your training and experience, your duties and responsibilities, the time and effort you put in, and what comparable businesses pay for similar services. There is no IRS percentage. If you are the only person generating the revenue, much of the profit comes from your work, and a very low salary is hard to defend.
How we did the sums
- One owner, 2026 tax year A single-member LLC with no employees, owned by one person who has no wages from another job and files as single.
- Employment taxes only “Net profit” is income minus expenses, before paying yourself. Income tax, the QBI deduction and state taxes are left out (see below).
- 2026 rates Social Security 12.4% up to the $184,500 wage base, Medicare 2.9% with no limit, and 0.9% Additional Medicare Tax above $200,000 for a single filer.
- Salary of 60% of profit This is our assumption, chosen to illustrate the mechanics, not an IRS rule. We show below what happens when the salary is higher.
- FUTA 6.0% on the first $7,000 of wages for 2026, 0.6% after the full state credit: $42 a year. State unemployment tax is not included.
- $2,000 a year of extra costs Our assumption for a payroll service and the separate Form 1120-S return. Get your own quotes.
Self-employment tax vs reasonable salary: what do the numbers say at six profit levels?
“Sole prop / LLC” is self-employment tax on Schedule SE (including Additional Medicare Tax at $250,000). “S corp payroll” is the employer and employee shares of Social Security and Medicare on the salary, plus $42 of FUTA. The last column subtracts the assumed $2,000 of running costs.
| Net profit | Sole prop / LLC: SE tax | S corp salary (60%) | S corp payroll taxes | Tax saved | After $2,000 costs |
|---|---|---|---|---|---|
| $30,000 | $4,239 | $18,000 | $2,796 | $1,443 | −$557 |
| $60,000 | $8,478 | $36,000 | $5,550 | $2,928 | $928 |
| $90,000 | $12,717 | $54,000 | $8,304 | $4,413 | $2,413 |
| $120,000 | $16,955 | $72,000 | $11,058 | $5,897 | $3,897 |
| $180,000 | $25,433 | $108,000 | $16,566 | $8,867 | $6,867 |
| $250,000 | $29,851 | $150,000 | $22,992 | $6,859 | $4,859 |
Net yearly gain from an S corporation election, 2026
Employment taxes only, salary 60% of profit, after $2,000 of assumed running costs
Two things stand out. At $30,000 the running costs eat the whole saving. And the gain falls between $180,000 and $250,000, because a sole proprietor’s Social Security tax stops at the $184,500 wage base. At $250,000 of profit, only $184,500 of the $230,875 of net earnings is taxed at 12.4%, so there is less self-employment tax left to save.
The worked example at $90,000
Sole proprietor or disregarded LLC
- Net profit
- $90,000
- Net earnings from self-employment: $90,000 × 92.35%
- $83,115
- Social Security: $83,115 × 12.4%
- $10,306
- Medicare: $83,115 × 2.9%
- $2,410
Self-employment tax$12,717
LLC taxed as an S corporation, $54,000 salary
- Social Security, employer and employee: $54,000 × 12.4%
- $6,696
- Medicare, employer and employee: $54,000 × 2.9%
- $1,566
- FUTA: $7,000 × 0.6%
- $42
- Payroll service and Form 1120-S (assumption)
- $2,000
Total cost / net gain vs sole proprietor$10,304 / $2,413
How much does the salary assumption matter?
A lot. Keep the $90,000 profit and raise the salary to $72,000 (80% of profit), and the S corporation comes out $341 a year worse after costs. Pay the full $90,000 as salary and it is $3,095 worse. The saving exists only to the extent that part of the profit is genuinely not pay for your own work.
The 20% qualified business income (QBI) deduction was made permanent by recent legislation, and the Form 8995 instructions say “reasonable compensation from an S corporation” is not QBI. In our $90,000 example, moving $54,000 into salary shrinks QBI by about $51,773, which can reduce the deduction by up to $10,355. In the 22% bracket that is up to $2,278 of extra income tax, almost the entire $2,413 gain. The exact effect depends on your taxable income, so have a CPA or enrolled agent run both versions of your return.
Our sums also leave out state unemployment tax and state taxes on S corporations; California, for example, taxes S corporation income at 1.5% with an $800 minimum franchise tax. For how to set up the salary and distributions once you elect, see how to pay yourself from an LLC.
How do you make the S corporation election, and when?
- File Form 2553 on time The form is due no more than 2 months and 15 days after the start of the tax year the election should apply to, or at any time in the year before. For a calendar-year LLC that wants S status from January 1, 2027, that means by March 15, 2027. The instructions describe relief for late elections.
- Set up payroll You will file Form 941 every quarter, Form 940 every year, and give yourself a Form W-2 by February 1, 2027 for 2026 wages.
- File Form 1120-S The S corporation return for 2026 is due March 15, 2027, with a Schedule K-1 to you. Form 7004 extends it to September 15, 2027.
All of these dates are on our deadlines page. If an IRS system is down when you need to file or pay, check whether the IRS is down before trying again.
Do you need an EIN for a single-member LLC?
Not always. The IRS says a disregarded single-member LLC with no employees and no excise tax liability can use the owner’s name and Social Security number. But banks usually ask for one to open an LLC account, and you need one as soon as you hire or elect S corporation status.
Getting one is free. The IRS online application issues the number immediately once the details are validated, and the IRS’s own page says: “Beware of websites that charge for an EIN. You never have to pay a fee for an EIN.” The tool runs Monday to Friday from 6:00 a.m. to 1:00 a.m. Eastern Time, Saturday from 6:00 a.m. to 9:00 p.m. and Sunday from 6:00 p.m. to midnight, with a limit of one EIN per responsible party per day.
Some sites that look official charge a fee for an “EIN filing service” and fill in the same free IRS application for you. Apply only at irs.gov. The link is in the sources below.
Does an LLC still have to file a BOI report with FinCEN?
No, not if it was formed in the United States. FinCEN issued a final rule on August 11, 2026 that made permanent the exemptions first introduced in March 2025, and it took effect on August 14, 2026. Under it, US companies are exempt from beneficial ownership information (BOI) reporting and no longer need to file. US persons do not have to provide BOI, and US persons with a FinCEN ID do not have to update it.
The only “reporting companies” left are entities formed under a foreign country’s law that register to do business in a US state or tribal jurisdiction. They have 30 calendar days after registration to file and do not report US-person owners.
FinCEN also warns about fraud. There is no fee to file BOI directly with FinCEN, FinCEN does not send letters asking for payment, and letters mentioning a “Form 4022”, a “Form 5102” or a “US Business Regulations Dept.” are fake.
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Do you need a separate business bank account?
For an LLC, keeping company money separate is part of what keeps the liability shield intact, and an account in the LLC’s name usually needs the formation documents and an EIN. For a sole proprietor it simply makes IRS records easier to keep. Our business checking accounts hub compares fees and requirements.
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- Open a first new Clearly Better Business Checking or Business Advisor Checking account and a new Business Savings account on the same day between 2026-10-01 and 2026-11-15.
- Checking bonus, each calendar month for 12 months: deposits totaling $1,000+ must post to the new checking account, and you must make fuel purchases (merchant category codes 5541/5542) with the Citizens debit card. The monthly bonus equals the fuel spend, capped at $100 (Business Advisor, $1,200 max) or $50 (Clearly Better, $600 max).
- Savings bonus: make one single deposit of $15,000+ in new money from an external source within 10 business days of opening the savings account. Each month, earn $50 if the end-of-day balance is $15,000-$39,999.99 or $150 if it is $40,000+, for up to 12 months ($1,800 max).
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Remind me before it ends
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- Deposit New Money (not already held at Bank of America or Merrill) into the new account within 30 days of opening. The total sets your tier: $5,000–$14,999 = $400; $15,000–$49,999 = $700; $50,000–$99,999 = $1,000; $100,000–$199,999 = $1,500; $200,000+ = $2,500.
- Keep a daily balance of at least your tier's minimum from day 31 after enrollment to day 90 after opening. A dip moves you to a lower tier; below $5,000 on any day means no bonus.
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- Open a new Business Essential, Business Plus or Business Premium Checking account between 2026-10-01 and 2026-11-30 with promo code BD (applied automatically online; for a branch, email yourself the bonus coupon from the offer page).
- Hold an average ledger balance in the third full calendar month after opening of $5,000-$14,999.99 ($300), $15,000-$29,999.99 ($500), $30,000-$99,999.99 ($750) or $100,000+ ($1,500).
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- Keep the account open at least six months: the bonus is deducted if you or M&T close the account within six months of opening, and a $50 account closure fee may apply.
Remind me before it ends
Should you stay a sole proprietor, form an LLC, or elect S corporation status?
- You sign contracts, leases or supplier terms where a claim against the business is a real risk
- Clients or platforms want to deal with a company rather than a person
- Your state’s fees are low (Delaware, Illinois or Florida-level, not California’s $800 a year)
- Your business is small or still a test, and liability risk is low
- You live in a state where the yearly cost is high relative to your profit
- You expected an LLC to cut your taxes; on its own, it does not
On our 2026 sums, an S corporation election is hard to justify below about $60,000 of profit and starts to look worthwhile from roughly $90,000, provided a 60% salary is reasonable for your work and the QBI effect does not wipe out the gain. Treat that as a reason to ask a CPA for a quote, not as the answer.
FAQ
Does a single-member LLC pay less tax than a sole proprietorship?
Not by default. The IRS treats a single-member LLC as a disregarded entity, so its profit goes on your Schedule C and Schedule SE exactly as a sole proprietor’s would. Taxes change only if the LLC elects to be taxed as an S corporation or a C corporation.
At what profit does an S corporation election save money?
On our 2026 employment-tax sums, with a salary of 60% of profit and $2,000 a year of extra costs, it loses $557 at $30,000, gains $928 at $60,000 and $2,413 at $90,000. A higher salary or the loss of part of the QBI deduction can erase the gain, so have a professional compare both returns.
Is California’s $800 LLC tax waived in the first year?
Not for new LLCs today. The first-year exemption applied only to tax years beginning in 2021 through 2023. A California LLC owes the $800 annual tax by the 15th day of the 4th month after it files with the Secretary of State.
How much does it cost to get an EIN?
Nothing. The IRS issues EINs free online, usually immediately, and warns that you never have to pay a fee for one. Sites that charge are filling in the same free application.
Do I need to file a BOI report for my LLC in 2026?
No, if the LLC was formed in the US. FinCEN’s final rule, issued August 11, 2026 and effective August 14, 2026, exempts US companies. Only foreign entities registered to do business in a US state still report, and they do not report US-person owners.
When is Form 2553 due for 2027?
For a calendar-year LLC that wants S corporation status from January 1, 2027, no later than March 15, 2027 (2 months and 15 days after the year starts). You can also file it at any time during 2026. The Form 2553 instructions explain relief for late elections.
Sources
- IRS: Single member limited liability companies (disregarded entity, EIN)
- IRS: Limited liability company (LLC) (classification, Form 8832)
- IRS Topic 751: Social Security and Medicare withholding rates ($184,500 wage base for 2026)
- IRS Publication 15 (2026), Employer’s Tax Guide (rates, Additional Medicare Tax, FUTA)
- IRS: Self-employment tax (15.3% rate, $400 filing threshold)
- IRS: Schedule SE (Form 1040) (92.35% of net profit)
- IRS: S corporation compensation and medical insurance issues (reasonable compensation factors)
- IRS: Instructions for Form 2553 (who can elect, 2 months and 15 days)
- IRS: Instructions for Form 8995 (what counts as QBI)
- IRS: Form 1040-ES (2026) (QBI deduction made permanent)
- IRS: Get an employer identification number (free, hours)
- FinCEN: Beneficial Ownership Information Reporting (final rule, fraud warnings)
- California Secretary of State: California LLCs ($70 Form LLC-1, $20 Statement of Information)
- California Franchise Tax Board: Limited liability company ($800 annual tax, LLC fee)
- California Franchise Tax Board: S corporations (1.5% rate, $800 minimum)
- Texas Secretary of State: Form 205, Certificate of Formation ($300 fee)
- Texas Comptroller: Franchise tax (no tax due threshold, due date)
- Florida Division of Corporations: Articles of Organization instructions (fees, annual report)
- New York Department of State: Forming a limited liability company (fee, publication)
- New York Department of State: Biennial statements ($9 fee)
- Illinois Secretary of State: LLC publications and forms ($150 Articles of Organization, $75 annual report)
- Delaware Division of Corporations: fee schedule (August 2026) ($110 LLC formation)
- Delaware Division of Corporations: LLC, LP and GP tax instructions ($400 annual tax, June 1)
Checked on October 25, 2026 against irs.gov, FinCEN and the six states’ official websites. Tax rules and state fees change; the IRS, FinCEN and the states’ own documents always prevail.