Hey there, business owner!
If you’re reading this, chances are you’re trying to figure out whether you should keep operating as a sole proprietor or if it’s time to upgrade to an LLC. It’s a big decision—one that could impact your taxes, personal liability, and how much money stays in your pocket.
Let’s break this down together so you can feel confident making the right choice for your business.
At Insogna CPA, we’ve guided hundreds of entrepreneurs in Austin, Round Rock, and beyond through these same decisions. So, let’s get you the clarity you deserve.
What Is a Sole Proprietorship? (And Is It Right for You?)
If you’ve started your business but haven’t officially registered it, congratulations—you’re already operating as a sole proprietor by default.
It’s simple: No paperwork beyond a DBA (Doing Business As) if you’re using a business name.
You’re the boss: Full control, but also full responsibility.
Taxes are straightforward: Profits and losses flow directly onto your personal tax return.
But here’s the catch—there’s no separation between you and your business legally. If something goes wrong, your personal savings, home, and even your car could be on the line.
Perfect for: Freelancers, solo consultants, and small side gigs where income and risk are low.
What About an LLC? (And Why Is Everyone Talking About It?)
An LLC (Limited Liability Company), on the other hand, is a step up in protection and professionalism.
Liability protection: If your business faces a lawsuit or debt, your personal assets (like your home) are protected.
Tax flexibility: You can choose how you’re taxed—either like a sole proprietor or as an S-Corp to reduce self-employment taxes.
Credibility boost: Having “LLC” after your business name adds a level of professionalism when dealing with clients and lenders.
Perfect for: Growing businesses, higher income earners, and anyone wanting personal asset protection.
LLC vs. Sole Proprietor: What’s the Difference?
Let’s break it down so you can clearly see how these two structures stack up against each other:
1. Liability Protection
- Sole Proprietor: No separation between you and your business. If you’re sued, your personal assets are at risk.
- LLC: Your personal and business finances are legally separate, protecting your personal savings and property.
Winner: LLC if you want to protect your personal assets.
2. Taxes (The Big One)
- Sole Proprietor: All income flows directly onto your personal tax return, and you’re hit with self-employment taxes on the entire amount.
- LLC: You can still report taxes the same way, but an LLC gives you the option to file as an S-Corp. This allows you to pay yourself a salary while reducing self-employment taxes on the remaining profits.
Example: If you earn $100,000 annually, switching from a sole proprietorship to an LLC taxed as an S-Corp could save you thousands in taxes each year.
Winner: LLC for tax-saving flexibility.
3. Business Credibility
- Sole Proprietor: Feels informal, which can sometimes hurt your chances with larger clients or business loans.
- LLC: Looks more professional, making it easier to secure financing and build trust with clients.
Winner: LLC for a more professional image.
4. Ease of Setup and Maintenance
- Sole Proprietor: Easy to start with minimal paperwork.
- LLC: Requires filing Articles of Organization and keeping business records, but the long-term benefits outweigh the effort.
Winner: Sole Proprietor for simplicity, but LLC for long-term benefits.
5. Cost to Maintain
- Sole Proprietor: Little to no cost.
- LLC: State filing fees and possibly annual franchise taxes.
Winner: Sole Proprietor for lower costs, but LLC offers more protection for the price.
Still Not Sure? Here’s a Quick Recap:
Stick with a Sole Proprietorship if:
- You’re making less than $50,000/year.
- Your business involves minimal risk.
- You want the simplest setup possible.
Switch to an LLC if:
- You’re making more than $75,000/year.
- You want to reduce self-employment taxes.
- You want personal asset protection.
- You’re planning to expand, hire, or take on bigger contracts.
How Insogna CPA Helps You Choose the Right Business Structure (Stress-Free)
Choosing between a sole proprietorship and an LLC isn’t just about filing paperwork—it’s about maximizing profits and minimizing risk.
That’s where we come in. At Insogna CPA, a leading Austin, Texas CPA firm, we help business owners like you make informed decisions that support your long-term success.
Here’s how we make the process simple:
Step 1: Personalized Consultation
We’ll sit down (virtually or in person) to review your income, business goals, and financial risk level.
Step 2: LLC Formation & Compliance
If an LLC makes sense for you, we’ll handle everything:
- Filing your Articles of Organization
- Obtaining your EIN
- Setting up your business bank account for clear expense tracking
Step 3: Tax Optimization (Including S-Corp Election)
Want to save even more on taxes? We’ll guide you on whether an S-Corp election can help you reduce your tax liability.
Step 4: Ongoing Accounting Support
We’re not just a one-time service. Our Austin accounting services cover:
- Monthly bookkeeping
- Quarterly financial reviews
- Proactive tax planning strategies
Real Success Story: How James Can Save Over $10,000 in Taxes With Help From Insogna CPA
James, a marketing consultant in South Austin, was operating as a sole proprietor but felt he was overpaying in taxes.
After working with Insogna CPA:
- We helped him form an LLC with an S-Corp election.
- James saved over $10,000 in self-employment taxes in his first year.
- We set up a QuickBooks system for effortless expense tracking.
Ready to Protect Your Business and Save on Taxes?
You’ve worked hard to build your business—now let’s make sure you’re structured for success. Whether you’re ready to switch from a sole proprietorship to an LLC or just want personalized advice, Insogna CPA has you covered.
👉 Book a consultation today with Insogna CPA, the trusted Austin Texas CPA firm, and let’s take your business to the next level!