Sole Proprietorship
- Tax filing: Schedule C attached to Form 1040
- Self-employment tax: Yes, on all net profit
- Liability exposure: High, your personal assets are fully exposed to business debts and lawsuits
Single-Member LLC (Taxed as Sole Proprietorship)
- Tax filing: Schedule C, same as sole prop (unless you elect S corp status, see below)
- Self-employment tax: Yes, on all net profit
- Liability exposure: Better protection than a sole prop, but only if the LLC is properly maintained
Multi-Member LLC / General Partnership (Taxed as a Partnership)
- Tax filing: Form 1065 (partnership return) + Schedule K-1 for each partner
- Self-employment tax: Generally yes for active partners, on their share of net profit
- Liability exposure: General partnerships carry unlimited personal liability for all partners. Multi-member LLCs offer better protection if properly structured.
S Corporation (Including LLC Electing S Corp Status)
- Tax filing: Form 1120-S + Schedule K-1 for each shareholder
- Self-employment tax: Only on your W-2 salary, not on profit distributions (this is the big tax savings)
- Requirement: You must pay yourself a “reasonable salary”. The IRS scrutinizes S corps that pay little or no salary to avoid payroll taxes
- Liability exposure: Good protection when properly maintained
C Corporation
- Tax filing: Form 1120
- Tax rate: Flat corporate rate, then dividend tax for distributions
- Salary: Owner-employees pay themselves a salary, which is a deductible business expense
- Liability exposure: Strong protection as a separate legal entity
Quick Reference: Entity Comparison
| Entity Type | Tax Return | Self-Employment Tax? | Pass-Through? |
| Sole Proprietorship | Schedule C (1040) | Yes, all profit | Yes |
| LLC (single-member) | Schedule C (1040) | Yes, all profit | Yes |
| LLC / Partnership | Form 1065 + K-1s | Yes, active partners | Yes |
| S Corp (or LLC as S Corp) | Form 1120-S + K-1s | Salary only | Yes |
| C Corporation | Form 1120 | No (salary is W-2) | No |
| General Partnership | Form 1065 + K-1s | Yes, all partners | Yes |