I run a small landscaping business and last year I formed an LLC, thinking it would lower my taxes. My accountant set it up as a single-member LLC, which is disregarded for federal tax purposes. So I'm still filing Schedule C and paying self-employment tax on all profits. The only real difference is the annual state LLC fee and a little more paperwork. Has anyone else found that an LLC didn't change their tax situation much?
LLC taxes
I switched from sole proprietor to LLC but my tax situation barely changed
That's normal for a single-member LLC. The LLC is a legal entity, not a tax classification. Unless you elect S-corp or C-corp, you're taxed the same as a sole prop. The main benefit is liability protection, not tax savings.
Did you talk to your accountant about an S-corp election? That's where the tax savings can come in, but it also means payroll and more admin. Might not be worth it at your income level.
We did discuss it briefly. He said S-corp could save on self-employment tax but the added payroll costs and paperwork might eat the savings at my revenue. I'm just trying to figure out if switching was even worth it.
The LLC fee in my state is $800 a year. That's a real cost. If you're not making much profit, it can feel like a waste.
I made the same switch and saw no tax difference either. But I sleep better knowing my personal assets are separate. For me that was worth the fee
Also, some states charge an LLC tax or franchise fee regardless of income. That can be a surprise.
If you're a single member and don't need the liability protection, a sole prop is simpler and cheaper. But if you have employees or significant assets, the LLC makes sense for non-tax reasons.
I do have one employee now, so liability protection was part of the reason. I just had unrealistic expectations about tax savings.
I'd say the LLC is still worth it for the liability shield, especially with an employee. But yeah, the tax part is often misunderstood.
Have you looked into qualified business income deduction? That applies to sole props and LLCs alike, so no difference there either.
One thing to watch: if you ever bring in a partner or want to raise money, the LLC structure can be more flexible. So it's not just about current taxes.
Bottom line: LLC is about legal structure, not tax magic. Your accountant Should have set that expectation. Maybe worth a follow-up conversation about future plans.