{"id":4230,"date":"2025-05-15T13:38:00","date_gmt":"2025-05-15T19:38:00","guid":{"rendered":"https:\/\/web.blockadvisors.com\/?p=4230"},"modified":"2025-05-15T13:58:09","modified_gmt":"2025-05-15T19:58:09","slug":"llc-vs-sole-proprietorship","status":"publish","type":"post","link":"https:\/\/hrbscaletest.hrblock.com\/resource-center\/manage-your-business\/llc-vs-sole-proprietorship\/","title":{"rendered":"Sole Proprietorship vs. LLC: What small business owners should know"},"content":{"rendered":"
\n
\"sole<\/figure>\n<\/div>\n\n\n

One of the first hurdles you\u2019ll face as a new small business owner is identifying which business entity<\/a> is right for your future venture. As you begin your research, you might encounter two options: a sole proprietorship and a limited liability company (LLC). You might wonder, \u201cWhat is the difference between a sole proprietorship vs LLC?<\/p>\n\n\n\n

Read on to understand the difference between a sole proprietorship and LLC so you can decide which is best for you as you start your business<\/a>. Each comes with its own nuances. Want more help? Block Advisors’ Business Formation service<\/a> can help you evaluate your options as you decide the best structure for your business. <\/p>\n\n\n\n

What is an LLC?<\/strong><\/h2>\n\n\n\n

The Limited Liability Company (LLC)<\/a> designation gives away one of its primary advantages \u2014 limited liability protection for its owners. This type of business entity is set up under state law and is taxed as either a sole proprietorship, partnership<\/a>, or corporation<\/a> at the federal level. Read on to hear why this is the case and how to appropriately structure your business at a federal level.<\/p>\n\n\n\n

With an LLC, your profits and losses<\/a> are passed through. Members of an LLC taxed as a sole proprietorship or partnership pay self-employment tax, which goes toward Medicare and Social Security. Traditional employees don\u2019t have to worry about paying self-employment tax, as their employers handle payment and withholding of employment taxes<\/a>.<\/p>\n\n\n\n

What is a sole proprietorship?<\/h2>\n\n\n\n

A sole proprietorship is arguably the simplest type of business to form and operate. You don\u2019t need to do anything to set one up because this is the default tax entity for those engaging in business activities for themselves.  You only need to report your business income<\/a> and expenses on your personal tax return.<\/p>\n\n\n\n

Due to its simplicity, a sole proprietorship is often the entry point for businesses run by businesses without contractors or employees<\/a>. This is because it\u2019s easy to set up. But in the long run, it might not be the most advantageous structure for your business for tax purposes as it grows and evolves.<\/p>\n\n\n\n

What is the difference between a Sole Proprietorship vs LLC?<\/h2>\n\n\n\n
\n