I Don’t Have an LLC — Should I Start One for Tax Benefits?
I Don’t Have an LLC — Should I Start One for Tax Benefits?
If you’re self-employed, running a side hustle, or managing freelance income, you may have asked yourself: “Do I need to form an LLC to reduce my taxes?” It’s a common question among small business owners, independent contractors, and consultants—especially once the tax bill starts growing.
This comprehensive guide will help you decide whether forming a Limited Liability Company (LLC) is right for you, and how it may (or may not) benefit your tax situation.
What Is an LLC and How Does It Work?
An LLC (Limited Liability Company) is a legal business structure recognized by all 50 states. It separates your personal assets from your business liabilities, offering protection from lawsuits, debts, and claims against the business.
Unlike a corporation, an LLC is relatively easy and inexpensive to set up. By default, it’s a “pass-through” entity, meaning business income passes directly to your personal tax return.
That said, LLCs can choose how they are taxed—sole proprietorship, partnership, S corporation, or even C corporation. This flexibility can be a big advantage when it comes to taxes.
Do You Need an LLC to Run a Business?
Legally, you do not need an LLC to operate a business. If you’re working as a freelancer, gig worker, or sole proprietor, you can run your business under your personal name or with a DBA (“Doing Business As”).
However, not having an LLC means:
Your personal assets are at risk if you get sued.
Your business name isn’t legally protected in your state.
You have fewer options for tax planning and deduction structuring.
While it’s possible to operate without an LLC, forming one opens the door to both legal protection and more favorable tax treatment.
How Can an LLC Help Me Save on Taxes?
The primary tax benefit of an LLC comes not from the structure itself, but how you choose to be taxed. Here's how LLCs can save you money:
1. Pass-Through Taxation
By default, an LLC avoids double taxation (which corporations face). All profits pass through to the owner's personal income, and are taxed once.
2. Deductible Business Expenses
LLCs allow you to deduct business expenses such as:
Office supplies and equipment
Business-related meals and travel
Health insurance premiums
Home office expenses
Vehicle mileage or depreciation
3. S Corporation Election (Form 2553)
Many LLCs elect to be taxed as S Corporations. Why? Because this allows owners to split income into salary and distributions, reducing self-employment tax liability.
This structure can save thousands in taxes once your business makes around $40,000 or more in net profit.
Not sure if you qualify? Speak with the experts at Legacy Tax & Resolution Services to explore if S Corp status makes sense for your LLC.
What Is Self-Employment Tax, and Can an LLC Reduce It?
Self-employment tax includes Social Security and Medicare taxes and applies to net earnings from self-employment. As of 2025, it’s 15.3% on your first $160,200 of income.
Here’s the catch: sole proprietors and single-member LLCs pay self-employment tax on 100% of net income.
But if your LLC elects S Corp taxation:
You pay yourself a reasonable salary (which is subject to payroll taxes).
The rest of your income can be taken as distributions (not subject to self-employment tax).
This strategy alone can save business owners thousands per year in payroll tax.
Are There Any Downsides to Starting an LLC?
While LLCs come with benefits, they’re not always the right answer for everyone. Here are potential drawbacks:
Filing Fees and Annual Reports: Florida charges an initial filing fee (
$125) and requires an annual report ($138.75 as of 2025).Administrative Overhead: You must keep good records, separate finances, and comply with state reporting requirements.
No Guaranteed Tax Savings: Not every LLC benefits from S Corp election—especially if your profits are low.
Before forming an LLC just for tax benefits, it’s wise to work with a professional. Legacy Tax & Resolution Services in Lake Mary, FL can help you compare options and choose the right path.
When Is the Right Time to Form an LLC?
You might not need an LLC on day one, but here are signs you should seriously consider it:
You're earning consistent income (generally $30,000+/year).
You’re offering services to the public and worry about legal liability.
You want to build business credit or apply for loans.
You're taking on partners or employees.
You want to separate personal and business finances.
You're planning to invest in marketing, equipment, or real estate.
Even if you’re not quite there yet, planning early can help you structure your business for success.
Is It Hard to Form an LLC in Florida?
Not at all. In Florida, the process is straightforward:
Choose your business name (check for availability).
File Articles of Organization with the Florida Division of Corporations.
Pay the one-time registration fee.
Obtain an EIN (Employer Identification Number) from the IRS.
Create an Operating Agreement (especially important if you have partners).
File an S Corp election (Form 2553) if desired.
Many people use online platforms, but if you want expert guidance, it’s best to work with a local CPA or tax advisor.
What If I Already File as a Sole Proprietor — Should I Switch?
If you're currently filing taxes on Schedule C as a sole proprietor and your income is growing, it's worth evaluating a switch.
Here’s what changes if you move to an LLC taxed as an S Corp:
You’ll still file your personal taxes, but your business files its own corporate return (Form 1120-S).
You’ll pay yourself a W-2 salary and withhold taxes accordingly.
You’ll issue yourself a K-1 for any remaining business profits.
This setup takes more effort—but it usually results in significant self-employment tax savings and more professional operations.
How Does an LLC Impact My Retirement or Healthcare Options?
One overlooked benefit of having an LLC is access to better benefits:
Retirement Plans
With LLC income, you can set up:
Solo 401(k)
SEP IRA
Simple IRA
These plans allow for much higher contribution limits than traditional IRAs.
Health Insurance
If you’re self-employed, your health insurance premiums may be deductible from your LLC income, reducing taxable income even further.
Ask your accountant about setting up an HSA or writing off premiums as part of your business operations.
Can I Have an LLC Even If I’m the Only Employee?
Absolutely. A single-member LLC (SMLLC) is one of the most popular business structures for solo entrepreneurs. You still get:
Legal protection
Full control of the business
Tax flexibility (Schedule C or S Corp)
Business name rights
You don’t need partners, employees, or a large team to make an LLC worth it.
Do I Need a CPA or Can I Do This Myself?
While it’s possible to form an LLC and file taxes yourself, mistakes can be costly. CPAs understand:
Entity selection and tax planning
S Corp salary structuring
IRS compliance
Deduction optimization
State-specific filing requirements
If you want to avoid penalties and maximize your benefits, working with a professional—especially for your first year—is the best investment.
Still unsure? Schedule a consultation with Legacy Tax & Resolution Services to get personalized answers about whether an LLC is right for your situation.
What If I Make Less Than $30K a Year? Should I Still Form an LLC?
If you’re earning under $30,000/year in net profit, forming an LLC might not yield significant tax savings yet, especially if you don’t elect S Corp status.
However, you may still want to form one for:
Legal protection
Branding credibility
Business banking and credit
Scalability for the future
Many people start as sole proprietors and transition to LLC once revenue justifies the additional effort and cost.
Final Thoughts: Should You Start an LLC for Tax Benefits?
The short answer? It depends. An LLC can absolutely offer tax benefits, but those benefits vary based on:
Your income level
Your business goals
Your risk tolerance
Your willingness to maintain structure
If you’re earning $30K+ from your business or gig work, want to reduce self-employment tax, and value legal protection, forming an LLC is often a smart move.
But it’s not a one-size-fits-all solution. The best way to know for sure is to talk with a qualified tax advisor or CPA in your area.
Need help weighing the pros and cons? Contact Legacy Tax & Resolution Services today to get expert advice on forming an LLC and setting up your business for long-term financial success.
References
IRS – Limited Liability Company (LLC)
IRS – S Corporation Election (Form 2553)
Florida Division of Corporations – LLC Filing
SBA – Choose a Business Structure
