Business structure
Sole proprietorship vs LLC: same default taxes, different liability and options
By default the IRS taxes a one-owner LLC the same way as a sole proprietorship: Schedule C and 15.3% self-employment tax. See what actually differs: liability, tax elections, EIN and W-9 rules, spouse ownership and deadlines.
Prepared by Aldro Accounting · Updated · Sources checked
The quick answer
By default the IRS treats a single-member LLC as a disregarded entity, so an individual owner reports it on Schedule C of Form 1040 and pays self-employment tax in the same manner as a sole proprietorship. The difference is legal and optional: the SBA says a sole proprietorship isn't a separate entity, so the owner can be held personally liable for business debts, while an LLC protects personal assets in most instances and can elect to be taxed as a corporation (Form 8832) or an S corporation (Form 2553).
What each structure is
The IRS defines a sole proprietor as someone who owns an unincorporated business by themselves. The SBA says you are automatically a sole proprietorship if you do business but don't register as any other kind of business. Sole proprietors can still get a trade name.
An LLC is an entity created by state statute. Depending on its elections and number of members, the IRS treats it as a corporation, a partnership or part of the owner's tax return, called a disregarded entity.
The two overlap more than most comparisons admit. The IRS says the sole member of a domestic LLC is not a sole proprietor only if the LLC elects to be treated as a corporation.
Why the default federal taxes are the same
For income tax, an LLC with one member is disregarded as separate from its owner unless it files Form 8832 and elects to be a corporation. If the owner is an individual, the LLC's activity generally goes on the owner's Form 1040 or 1040-SR, on Schedule C, Schedule E or Schedule F.
Self-employment tax works the same way too. The IRS says an individual owner of a single-member LLC that runs a trade or business pays tax on net earnings from self-employment in the same manner as a sole proprietorship.
Anyone with $400 or more of net earnings from self-employment pays the tax and files Schedule SE. The rate is 15.3%: 12.4% Social Security and 2.9% Medicare. For 2026, the Social Security part applies to the first $184,500 of combined wages, tips and net earnings. An additional 0.9% Medicare tax applies above $200,000 for single filers, $250,000 for married filing jointly and $125,000 for married filing separately. The employer-equivalent portion is deductible when figuring adjusted gross income, which lowers income tax only.
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| Item | Sole proprietorship | Single-member LLC (default) | LLC with two or more members (default) |
|---|---|---|---|
| Federal classification | Not a separate entity | Disregarded entity | Partnership |
| Income reported on | Form 1040, Schedule C | Form 1040, Schedule C (or E or F) | Form 1065, with Schedule K-1 to each partner |
| Self-employment tax | Schedule SE, 15.3% | Schedule SE, same manner as a sole proprietorship | Not covered on this page |
| Return due | 15th day of the 4th month after year end | 15th day of the 4th month after year end | 15th day of the 3rd month after year end |
Difference 1: personal liability
The SBA says a sole proprietorship doesn't produce a separate business entity. Business assets and liabilities aren't separate from personal ones, and the owner can be held personally liable for the business's debts and obligations. The SBA adds that it can be hard to raise money because a sole proprietorship can't sell stock, and banks are hesitant to lend to one.
An LLC protects its owners from personal liability in most instances. The SBA says personal assets such as a vehicle, house and savings accounts won't be at risk if the LLC faces bankruptcy or lawsuits.
The SBA describes a sole proprietorship as a good choice for low-risk businesses and for owners testing an idea, and an LLC as a good choice for medium- or higher-risk businesses and owners with significant personal assets to protect. It also notes LLCs can have a limited life in many states: some states may require an LLC to be dissolved and re-formed when a member joins or leaves, unless an agreement is already in place.
Difference 2: an LLC can change how it's taxed
A sole proprietorship has one federal tax setup. An LLC can choose another one without changing its state legal structure.
Form 8832 lets an LLC elect to be taxed as a corporation. An LLC taxed as a C corporation files Form 1120. Generally the election can't take effect more than 75 days before it is filed, or later than 12 months after. Once an entity changes its classification, it generally can't change it again by election for 60 months after the effective date.
Form 2553 is the S corporation election. A qualifying LLC that elects S corporation status files Form 1120-S and S corporation laws apply to it. The Form 8832 instructions say an eligible entity that timely files Form 2553 and meets the other S corporation requirements is deemed to have elected to be classified as an association taxable as a corporation. Form 2553 is due no more than 2 months and 15 days after the beginning of the tax year the election is to take effect, or at any time during the preceding tax year.
Difference 3: EIN, W-9 and payroll rules
For income tax reporting, a disregarded single-member LLC generally uses the owner's Social Security number or EIN. If an LLC owned by an individual has to give a client a Form W-9, the W-9 shows the owner's SSN or EIN, not the LLC's EIN.
A disregarded single-member LLC with no employees and no excise tax liability doesn't need an EIN. It can still get one if a bank needs it to open an account or state tax law requires it. The online EIN application is free.
Payroll is where the LLC stands apart. A single-member LLC is treated as a separate entity for employment tax and certain excise taxes. For wages paid after January 1, 2009, it must use its own name and EIN to report and pay employment taxes. It also uses its own name and EIN for excise tax registration on Form 637, excise returns on Forms 720, 730, 2290 and 11-C, and refund claims on Form 8849.
Difference 4: married co-owners
An LLC owned by a husband and wife in a non-community property state should file as a partnership. Spouse-owned LLCs can't be qualified joint ventures, which can elect not to be treated as partnerships, because they are state law entities.
In a community property state, Rev. Proc. 2002-69 lets a qualified entity owned solely by spouses as community property be treated as either a disregarded entity or a partnership, and the IRS accepts the position the owners take.
Deadlines and late-filing penalties by tax setup
A sole proprietor and a default single-member LLC owner share the Form 1040 deadline and quarterly estimated tax dates. If the LLC has two or more members or elects S corporation status, the deadline moves up a month and the penalty changes from a share of unpaid tax to a flat amount per owner.
Estimated tax payments for individuals are due on the 15th day of the 4th, 6th and 9th months of the tax year and the 15th day of the 1st month after it ends. In general, the underpayment penalty is avoided if withholding and timely estimated payments equal at least the smaller of 90% of the current year's tax or 100% of the prior year's tax (110% when prior-year adjusted gross income was over $150,000, or $75,000 if married filing separately). There is also no penalty if the tax on the return minus withholding is less than $1,000.
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| Tax setup | Return | Due date | Extension | Late-filing penalty |
|---|---|---|---|---|
| Sole proprietor or default single-member LLC | Form 1040 with Schedule C | 15th day of 4th month | Form 4868, 6 months | 5% of unpaid tax per month or part month, up to 25%. If more than 60 days late, at least $525 or 100% of the tax due, whichever is less |
| LLC taxed as a partnership | Form 1065 | 15th day of 3rd month | Form 7004, 6 months | $255 per partner per month or part month, up to 12 months |
| LLC taxed as an S corporation | Form 1120-S | 15th day of 3rd month | Form 7004, 6 months | $255 per shareholder per month or part month, up to 12 months |
| LLC taxed as a C corporation | Form 1120 | 15th day of 4th month | Form 7004, 6 months | Same as Form 1040: 5% per month up to 25%, $525 minimum after 60 days |
Filing either one
Whichever structure you pick, the default return is the same Schedule C, and a later S corporation or corporation election changes which forms are due and when. Aldro's team prepares and files Schedule C, Form 1065, Form 1120-S and Form 1120 with their state returns for one flat yearly price that covers everything tax.
Worked example
Say a sole proprietor and a single-member LLC owner each have $60,000 of net profit in 2026, with no wages and no elections. Both figure net earnings the same way: 92.35% of $60,000 = $55,410. Social Security part: 12.4% of $55,410 = $6,870.84. Medicare part: 2.9% of $55,410 = $1,606.89. Each owes $8,477.73 of self-employment tax on Schedule SE, and each deducts half of it, $4,238.87, when figuring adjusted gross income. The LLC changes nothing in this math. It changes who is liable for the business's debts and which elections are available later.
Common questions
Is a single-member LLC taxed differently than a sole proprietorship?
Not by default. A one-member LLC is a disregarded entity unless it elects to be a corporation, so an individual owner reports it on Schedule C and pays self-employment tax in the same manner as a sole proprietorship.
What is the main difference between a sole proprietorship and an LLC?
Liability. The SBA says a sole proprietor can be held personally liable for the business's debts and obligations, while an LLC protects personal assets such as a house, vehicle and savings in most instances. An LLC can also elect corporate or S corporation tax treatment.
Which number goes on Form W-9 for a single-member LLC?
For a disregarded LLC owned by an individual, the owner's Social Security number or EIN, not the LLC's EIN.
Does a single-member LLC need an EIN?
Not if it is disregarded and has no employees and no excise tax liability. It can still get one, free online, if a bank or state law needs it. It must use its own EIN for employment taxes on wages paid after January 1, 2009.
Can a married couple's LLC file on Schedule C?
In a non-community property state, a spouse-owned LLC files as a partnership and can't be a qualified joint venture. In a community property state, Rev. Proc. 2002-69 lets spouses who own it as community property treat it as a disregarded entity or a partnership.
Aldro
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Sources
- IRS: Sole proprietorships · checked October 31, 2026
- SBA: Choose a business structure · checked October 31, 2026
- IRS: Single member limited liability companies · checked October 31, 2026
- IRS: Self-employment tax (Social Security and Medicare taxes) · checked October 31, 2026
- IRS: Instructions for Form 2210 · checked October 31, 2026
- IRS: LLC filing as a corporation or partnership · checked October 31, 2026
- IRS: Limited liability company (LLC) · checked October 31, 2026
- IRS: Failure to file penalty · checked October 31, 2026
- IRS: Form 8832 and instructions · checked October 31, 2026
- IRS: Publication 509, Tax calendars · checked October 31, 2026
This guide explains general rules from the sources listed. It isn’t tax advice for your situation.