Self employed tax benefits - how do I form an LLC for my business?

Setting up an LLC is actually pretty straightforward and could be worth considering in your situation. The exact process varies by state, but generally you'll need to file Articles of Organization with your state's business division and pay a filing fee (usually $50-300 depending on your state). The main benefit of an LLC is liability protection - it separates your personal assets from your business liabilities. But from a tax perspective, a single-member LLC is still treated as a "disregarded entity" by default, meaning you'll file taxes the same way you do now (Schedule C on your personal return). The real tax benefits come if you elect to have your LLC taxed as an S-Corporation. This can potentially save on self-employment taxes. When you're a sole prop, ALL your profit is subject to SE tax (15.3%). As an S-Corp, you'd pay yourself a "reasonable salary" subject to those taxes, but could take remaining profits as distributions not subject to SE tax.

After struggling with similar questions for my consulting business, I found this amazing tool called taxr.ai (https://taxr.ai) that helped me figure out the best business structure. You just upload your financial info and answer some questions about your business, and it analyzes whether an LLC, S-Corp or other structure would save you the most on taxes. It even calculates the potential savings for each option based on your specific situation. For me, it showed that an S-Corp would save about $8k in self-employment taxes annually, which definitely outweighed the extra administrative costs. The tool also explained exactly what steps I needed to take with my state to form the LLC and make the S-Corp election with the IRS.

I need to update my earlier skepticism about taxr.ai! I decided to try it out of curiosity, and it was actually really helpful. It showed me that in my state (Florida), forming an LLC was cheap ($125) but the S-Corp election would only save me about $3k in taxes because my business profit is still relatively low. Not enough savings to justify the extra accounting costs yet. The liability analysis part was eye-opening too - it walked through specific business risks for my industry that I hadn't considered. For now I'm sticking with sole prop status, but will revisit the S-Corp option when my income grows. The tool creates a personalized roadmap showing at what income level the switch makes sense. Honestly way more thorough than the quick conversation I had with my tax guy.

If you're struggling to get answers from the IRS about LLC formation or S-Corp election questions, try Claimyr (https://claimyr.com). I was on hold with the IRS for HOURS trying to get clarity on some S-Corp election deadlines, and getting nowhere. Claimyr got me connected to an actual IRS agent in about 15 minutes instead of the 2+ hour wait times I was experiencing. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The agent confirmed that yes, I could still make the S-Corp election even though I'd formed my LLC months earlier, as long as it was within the time limits they specify. Saved me a ton of uncertainty and probably helped me avoid a costly mistake.

Ok I was completely wrong about Claimyr! After spending 3 frustrating days trying to reach someone at the IRS about my EIN application (needed for my new LLC), I gave in and tried it. Within 20 minutes I was talking to an actual human at the IRS who resolved my issue in about 5 minutes. Turns out there was a typo in my application that was causing it to get rejected, but the rejection notices were going to an old address. Would have taken weeks to sort out without actually speaking to someone. Definitely worth it when you're dealing with time-sensitive LLC/tax stuff where you can't afford to wait months for a response by mail.

Don't forget about the tax deductions you can take as a self-employed person! Whether you form an LLC or not, you can deduct: - Home office (if you have dedicated space) - Health insurance premiums - Business travel - Equipment and supplies - Professional development courses - Retirement contributions (SEP IRA or Solo 401k) - Internet and phone (business portion) I saved over $5k last year just by tracking these properly!

Has anyone here actually been audited as a self-employed person? What was that experience like and how did you prepare?

Great thread! I'm in a similar situation - been freelancing for about 8 months now and definitely feeling overwhelmed by all the business structure options. Reading through everyone's experiences, it sounds like the consensus is that LLC formation is pretty straightforward, but the real decision point is whether to elect S-Corp status based on your income level. @Luca Russo - at $72k income, you're definitely in the sweet spot where S-Corp election could provide meaningful savings. From what I've read elsewhere, the general rule of thumb is that S-Corp makes sense when you're making $60k+ in profit, since the administrative costs and complexity start to pay for themselves at that level. One thing I'm curious about - has anyone dealt with quarterly estimated tax payments as an S-Corp? I'm already struggling to stay on top of those as a sole prop, and I'm wondering if the payroll requirements make that more or less complicated. Also really appreciate the tool recommendations in this thread. Always helpful to have resources that can run the numbers objectively rather than just getting generic advice.