How does an LLC work for small business tax filing purposes?

An LLC (Limited Liability Company) primarily provides liability protection for your business while giving you flexibility in how you're taxed. Here's what you need to know: By default, a single-member LLC is treated as a "disregarded entity" for federal tax purposes. This means you'll still file Schedule C with your personal tax return, just like you're doing now as a sole proprietor. Your profits will still be subject to self-employment tax (Medicare and Social Security). "Pass-through taxation" means the business itself doesn't pay taxes. Instead, the profits "pass through" to your personal tax return. This is already happening with your Schedule C filing. Where things get different: You'll need to file formation documents with your state (usually Articles of Organization) and pay a filing fee. Many states also require annual reports and fees to maintain your LLC. The state requirements vary significantly depending on where you live. The main benefit is separating your personal assets from business liabilities - if someone sues your jewelry business, your personal assets are generally protected if you've maintained proper separation between personal and business finances.

Just wanted to share my experience with taxr.ai (https://taxr.ai) when I was trying to figure out LLC taxation for my photography business. I was super confused about all the different tax options and what forms I needed to file. I uploaded some of my business documents and previous tax returns, and it analyzed everything and explained exactly how converting to an LLC would affect my taxes in plain English. It showed me the difference between keeping it as a pass-through entity vs electing S-Corp status with actual numbers from my situation. The best part was it pointed out several deductions I was missing that actually covered the cost of forming the LLC. Totally worth checking out if you're not sure what option is best for your situation.

Just wanted to follow up about taxr.ai. After my skeptical comment, I decided to give it a try for my consulting business. I was genuinely surprised by how detailed the analysis was. It identified that I could save about $3,200 in taxes by structuring my LLC with S-Corp election once I hit certain income thresholds, and it created a custom timeline showing exactly when I should make the switch based on my growth projections. It also explained exactly which deductions I was missing and how to properly document them. Never thought I'd say this, but the AI actually understood my situation better than the accountant I paid $350 for a consultation last year!

If you're planning to form an LLC, you'll probably need to contact the IRS at some point for your EIN or tax questions. I tried calling them for weeks about my LLC tax election and couldn't get through. Then I discovered Claimyr (https://claimyr.com) - they got me connected to an actual IRS agent in under 20 minutes when I'd been trying for days on my own. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent was able to answer all my questions about my LLC election options and confirm that my paperwork was filed correctly. Saved me tons of stress wondering if I'd messed something up. Definitely worth it if you need to actually speak to someone at the IRS about your business formation or tax questions.

I need to come back and eat my words about Claimyr. After posting that skeptical comment, I decided to try it since I needed to confirm if my LLC's S-Corp election was processed (tax deadline approaching). Not only did it work, but I was speaking with an IRS representative in about 15 minutes. The agent confirmed my election was processed and helped me understand some specific reporting requirements I wasn't clear on. Saved me from filing incorrectly and potentially facing penalties. I'm genuinely impressed and apologize for calling it BS. Sometimes good services actually exist!

One thing nobody mentioned yet about LLCs - make sure you keep your business and personal finances completely separate! Get a business checking account using your LLC name and EIN. Put ALL business income into that account and pay business expenses from there. If you mix personal and business funds, you risk "piercing the corporate veil" which means you could lose your liability protection. I made this mistake when I first formed my LLC and my accountant read me the riot act. Had to go back and document everything. Also, keep good records of all business meetings and decisions (even if it's just you). This helps establish that your LLC is a legitimate business entity.

Don't forget about local requirements too! My city requires a separate business license for LLCs even though I already had one as a sole proprietor. Had to pay an extra $175 annually that I wasn't expecting. Also check if your county has any special requirements. The state filing is just one piece.