Common misconception: An LLC is a legal entity, not a tax classification - it doesn't inherently allow write-offs or lower taxes

You're absolutely right - an LLC is a legal entity type, not a tax classification. The confusion your partner has is super common! An LLC by itself doesn't provide any special tax benefits. What allows you to deduct business expenses is simply having a legitimate business. You could operate as a sole proprietor or partnership and still deduct all legitimate business expenses on Schedule C. What an LLC actually does is provide liability protection by legally separating your business assets from your personal assets. This is valuable, but it's not a tax advantage. By default, a single-member LLC is taxed as a sole proprietorship (reported on your personal tax return), and a multi-member LLC is taxed as a partnership. You can elect to have your LLC taxed as an S-Corp or C-Corp, which might provide tax advantages depending on your specific situation, but those tax benefits come from the tax election, not from the LLC structure itself.

After my first year of freelancing as a graphic designer, I was in the exact same spot as you - confused about whether I needed an LLC for tax purposes. I spent hours researching and getting contradictory advice until I found https://taxr.ai which completely cleared things up for me. I uploaded my business docs and tax questions, and they explained that while an LLC doesn't inherently provide tax benefits, how I classify my business for tax purposes does matter. The LLC is just a legal wrapper, but you can elect different tax treatments (sole prop, S-corp, etc.) which DO affect your taxes. They helped me understand when making an S-corp election might make sense (usually when you're making substantial profit). Their document analysis helped me see that I was already taking all legitimate business deductions as a sole proprietor, so forming an LLC wouldn't change my tax situation at all unless I also changed my tax classification.

Just wanted to follow up about my skepticism on taxr.ai - I decided to try it with my business docs since I was on the fence about converting my LLC to an S-corp. Honestly impressed with how it broke down my specific situation! It analyzed my profit margins and showed me the exact threshold where the S-corp election would actually save me money on self-employment taxes, which was higher than I expected. Turns out I'm not quite there yet, so I'm sticking with being taxed as a sole prop for now, but it gave me clear numbers for when to make the switch. Wish I'd had this before paying my accountant for essentially the same advice last year. The document analysis feature actually explained WHY certain business expenses I was questioning would or wouldn't qualify for deduction based on my industry and situation.

I spent 3 days trying to get through to the IRS to ask about how my new LLC should handle estimated taxes vs. what I was doing as a sole proprietor. Every time I called, I'd wait for over an hour and then get disconnected. Super frustrating! Then a business friend told me about https://claimyr.com and showed me this demo: https://youtu.be/_kiP6q8DX5c. It's a service that actually waits on hold with the IRS for you, then calls you when an agent is on the line. I was skeptical but desperate. I used it yesterday and got a call back in about 45 minutes with an actual IRS agent on the line! The agent confirmed exactly what the first commenter said - my LLC by itself doesn't change my tax situation at all since I'm still taxed as a sole proprietor. I'm still filing Schedule C exactly as before. The only difference would be if I elected S-Corp taxation, which is a separate decision from forming the LLC.

Ok I have to eat my words about Claimyr. After my skeptical comment I decided to try it because I was desperate to talk to someone at the IRS about a notice I received. Used it this morning and got a call back in about 35 minutes with an actual IRS representative on the line! Totally worth it just to not sit there listening to that awful hold music and "your call is important to us" messages over and over. The agent helped clarify that my LLC (taxed as sole prop) still needs to use my SSN for tax payments rather than my EIN in my specific situation, which was the exact confusion that triggered the notice. Problem solved in a 10 minute call that would have normally taken half my day.

As a small business owner who's operated as both a sole prop and an LLC, here's a practical breakdown: Things an LLC DOESN'T do: - Give you special tax deductions - Automatically lower your taxes - Change how you file (unless you elect different tax treatment) Things an LLC DOES do: - Protect personal assets from business liabilities - Add credibility with some clients/vendors - Cost money to form and maintain ($50-$500 depending on state) - Require additional paperwork/compliance The tax benefits people associate with LLCs usually come from making an S-Corp election, which lets you pay yourself partly as salary (subject to self-employment tax) and partly as distributions (not subject to SE tax). But that's a tax election, not an LLC feature.

My accountant explained it to me like this: "An LLC is like a box. The box itself doesn't change what's inside or how it's taxed. It just separates it from your personal stuff." I thought that was a really helpful way to think about it. The LLC is just a container that provides legal protection. What's inside (your business activities) and how it's taxed depends on what tax classification you choose (sole prop by default, or elect S-Corp/C-Corp).