Does a sole proprietor pay the same self-employment taxes as an LLC owner?

Depends on the LLC. A single-member LLC is taxed like a sole prop by default. So yeah, same SE tax.

Your friend is right unless she filed an S-corp election. But that's a whole other can of worms.

Liability pro tection, mainly. Not taxes. But hey, what do I know, I'm just a guy who's been audited twice.

LOL GrumpyGus, maybe don't lead with that.

To answer the original question: yes, a single-member LLC by default pays the same 15.3% self-employment tax on net earnings as a sole proprietor. The LLC is a legal entity, not a tax classification. If she elects S-corp status, she can take a reasonable salary and avid SE tax on the remaining distributions, but that comes with payroll and filing costts. So for most small businesses, the tax treatment is identical.

Also, don't forget the QBI deduction. That applies to both sole props and LLCs, so no difference there either.

Right, but the S-corp election can sometimes reduce QBI too. It's not a free lunch.

Has anyone actually done the S-corp election for a tiny business? I looked into it and the payroll fees ate most of the savings.

It really only makes sense if you're netting maybe $60k+, and can pay yourself a reasonable salary that's significantly lower than net profit. Otherwise, the administrative headache isn't worth it.

And if you mess up the salary part, the IRS will reclassify distributions as wages and hit you with penalties. Fun stuff.

This thread is making me never want to start a business.

Just stick with sole prop until you're making real money. Less paperwork, same taxes.