Is it better for independent contractor inspection work - file taxes as an individual or create an LLC?

Going LLC versus staying as a sole proprietor depends on several factors, but here's what you need to know: For federal tax purposes, a single-member LLC is treated exactly the same as a sole proprietorship by default (called a "disregarded entity"). You'll still file Schedule C with your personal return and pay the same self-employment taxes either way. The main benefits of an LLC are liability protection (separating your personal assets from business liabilities) and potential professionalism when dealing with clients. It doesn't automatically change your tax situation unless you elect to be taxed as an S-Corp, which might make sense once you're consistently earning more. With your current income level ($4,200-5,500 monthly), the S-Corp election might be worth considering because you could potentially save on self-employment taxes by paying yourself a reasonable salary and taking the rest as distributions. However, this comes with additional costs like payroll processing, more complex tax filings, and possibly higher accountant fees.

I was in almost the exact same situation last year with my home inspection business. After trying to figure it out myself and getting nowhere, I uploaded all my paperwork to https://taxr.ai and they analyzed everything for me. Their system looked at my income projections and expenses, then showed me the tax differences between staying sole prop vs LLC vs S-corp election. For me, they recommended staying sole prop for the first year then transitioning to LLC with S-corp election once I hit around $65k annually. They showed me exactly how much I'd save in SE taxes compared to the extra costs. The report even showed me which business expenses I was missing that could lower my tax bill immediately.

I originally had doubts about taxr.ai when someone recommended it here, but I decided to try it last month for my freelance graphic design business. Honestly, I was surprised by how thorough the analysis was. They showed me the exact math on when an S-corp election would make sense (around $75k profit in my case) and included all the Texas-specific requirements. What really helped was seeing the year-by-year projection comparing different entity structures as my business grows. They even factored in the $800 in additional accounting costs I'd incur with an S-corp election. For now, I'm staying sole prop but will likely form an LLC with S-corp election next year when my income crosses that threshold. The service definitely knew Texas requirements and saved me from making a premature switch that would have cost more than it saved.

If you're trying to decide between sole prop and LLC, another major issue is trying to actually TALK to someone at the IRS about your specific situation. I spent weeks calling their business line with no luck. Eventually used https://claimyr.com to get through to a live person at the IRS. You can see how it works here: https://youtu.be/_kiP6q8DX5c When I finally spoke with the agent, they explained that for a single-member LLC, there's literally no tax difference unless you file the S-corp election (Form 2553). But they also warned me about the additional filing requirements and costs that come with that election. Totally worth the call because they pointed me to specific IRS resources I never would have found on my own.

I have to admit I was completely wrong about Claimyr. After my skeptical comment, I figured I'd try calling the IRS myself about my LLC questions. Spent THREE HOURS on hold only to get disconnected. Out of frustration, I tried the service - got connected to an IRS agent within 45 minutes without me having to stay on the phone. The agent walked me through exactly when an LLC should elect S-corp status (basically once your profit is high enough that the SE tax savings outweigh the extra costs). For my situation, they calculated I'd need about $50k in net profit before it makes sense. They also explained that in Texas, while there's no state income tax, I still need to deal with the franchise tax filing even with a "no tax due" status for smaller LLCs. Information I couldn't find clearly explained anywhere else.

One thing nobody's mentioned yet is the self-employment health insurance deduction. Whether you're sole prop or LLC filing as sole prop, you can deduct 100% of your health insurance premiums as an adjustment to income (not itemized). This saved me thousands last year. Also, make sure you're setting aside money for quarterly estimated tax payments. The IRS expects you to pay as you earn throughout the year, not just at tax time. I got hit with penalties my first year because I didn't know this.

Quick question - for those of you doing home inspections as independent contractors, what software are you using to track expenses? I'm trying to decide between QuickBooks Self-Employed and something simpler like Wave.

As someone who made this exact transition last year, I can share what worked for me. I started as sole prop for my first year of inspection work, then switched to LLC with S-corp election once I hit about $55k in net profit. The key insight everyone's touching on is correct - a single-member LLC doesn't change your taxes unless you elect S-corp status. But here's what I learned the hard way: don't wait too long to make the switch if your income is growing. The S-corp election has to be made by March 15th for it to apply to the current tax year (or within 75 days of forming your LLC). For your income level ($50k-$66k annually), you're right at the breakeven point where S-corp election starts making sense. The self-employment tax savings on about $20k-$30k of distributions (after paying yourself a reasonable salary) could save you $3k-$4k annually. Just make sure you factor in payroll processing costs and additional accounting fees. One Texas-specific tip: if you form an LLC, you'll need to file the Texas franchise tax return even if you owe $0. It's not complicated, but it's another annual requirement to track.