Guide topic
Structure, hiring and paying people
Whether to form something, what it costs to keep, and how money legitimately leaves it.
United States only. These guides cover US federal tax. They do not apply to Canada, the UK or other countries.
The structure question gets asked far earlier than it needs to be. A sole proprietorship is the default, costs nothing, and is the right answer for most people earning under roughly $40,000 of profit. An LLC buys liability separation but changes your federal income tax by exactly nothing on its own; an S-corp election can genuinely cut the self-employment tax bill, but only above a profit level where the payroll and filing costs are worth paying.
What tips those calculations is usually the recurring cost, and that is where published fee tables tend to mislead. Seventeen states levy a tax on the entity itself regardless of profit — California’s $800, Kentucky’s LLET, Tennessee’s franchise and excise tax — and most comparison tables list none of them.
The other half of this topic is people. Paying yourself from an LLC is not payroll and does not work like a salary. Paying someone else raises the contractor-or-employee question, which has real penalties attached to getting it wrong — and paying your own child under 18 carries one of the last genuinely generous family tax advantages left.
9 guides, in the order they usually matter
- Sole proprietor, LLC or S corp: when each one actually saves money An LLC saves no tax at all. An S corp does, but only above a profit level most freelancers never reach. The honest comparison.
- How to pay yourself from an LLC (and why it isn't a salary) A single-member LLC owner takes draws, not wages, and is taxed on profit whether or not any money moves. The transfer is just bookkeeping.
- How do you actually withdraw money from an LLC bank account? The mechanics: transfer it, record it as a draw, and never spend from the business card personally. Plus the two limits on how much you can take.
- How do you pay yourself in a multi-member LLC? Two different ways money reaches a partner — distributions and guaranteed payments — and only one of them is deductible by the LLC. Plus the K-1 trap.
- Do you need an EIN as a sole proprietor? Legally, usually not. Practically, get one anyway — it is free, takes ten minutes, and stops you handing your Social Security number to every client.
- Seventeen states tax your LLC for existing. Most fee tables list none of them We audited all 51 US jurisdictions for entity-level taxes on LLCs. Rhode Island's real floor is $450, not $50. Six states are missing from fee tables.
- Hiring your first contractor: 1099 or W-2, and the risk of guessing The classification is not yours to choose. Getting it wrong makes you liable for both halves of payroll tax, plus penalties, across years.
- Can you hire your spouse or your children? Paying your own child under 18 in a sole proprietorship avoids payroll tax entirely — one of the few genuine family tax advantages left, with strict conditions.
- What it really costs to dissolve an LLC The state filing fee is $0–$200. The expensive part is the tax year you fail to close — and simply abandoning the company is the costliest option of all.