LLC vs. Sole Proprietor Decision Checklist — SoloStack https://solostack.madethis.app/resources/freelance-llc ================================================================ SECTION 1: SHOULD YOU FORM AN LLC? (10-QUESTION CHECKLIST) ---------------------------------------------------------------- Answer YES or NO to each question. Tally your YES answers at the end. [ ] 1. Do you earn $30,000 or more per year from freelance work? [ ] 2. Do you work with 3 or more clients in a given year? [ ] 3. Could a mistake in your work cause financial losses for a client? (e.g., software errors, financial/legal/medical content, design for regulated industries, data handling) [ ] 4. Do you have personal assets worth protecting? (savings, a home, a car, investments) [ ] 5. Have you signed or plan to sign client contracts for $5,000 or more? [ ] 6. Do you want to open a dedicated business bank account? [ ] 7. Do you want to build business credit separate from personal credit? [ ] 8. Do you plan to hire subcontractors or employees in the next 12 months? [ ] 9. Is your freelance income your primary or only income source? [ ] 10. Are you building a long-term freelance business (not just testing the waters for 6 months)? SCORING: 7–10 YES answers → Form an LLC. The liability protection and professionalism benefits are worth the cost. 4–6 YES answers → Seriously consider it. You're at a point where the risk-to-cost tradeoff starts making sense. 0–3 YES answers → You can probably wait. Focus on getting clients and building income first. Revisit in 6 months. ================================================================ SECTION 2: SIDE-BY-SIDE COMPARISON TABLE ================================================================ Dimension | Sole Proprietor | LLC ------------------+---------------------------+--------------------------- Liability | Personal assets at risk | Personal assets protected | (savings, home, car) | from business lawsuits ------------------+---------------------------+--------------------------- Setup Cost | $0 | $50–$500 state filing fee ------------------+---------------------------+--------------------------- Taxes (Default) | 15.3% SE tax on | Same — taxed identically | 100% of net profit | to sole prop by default ------------------+---------------------------+--------------------------- S-Corp Option | Not available | Available via Form 2553 | | (tax savings when $80k+) ------------------+---------------------------+--------------------------- Admin Burden | None | Annual report ($0–$100) | | + registered agent ------------------+---------------------------+--------------------------- Credibility | "Your Name Freelancing" | "Your Name LLC" | | (banks/clients treat | | you more professionally) ------------------+---------------------------+--------------------------- Banking | Personal account works | Separate business | | account required ------------------+---------------------------+--------------------------- Contracts | Contract in your name | Contract in LLC name | | (cleaner separation) ------------------+---------------------------+--------------------------- Exit / Dissolve | Just stop working | File Articles of | | Dissolution + pay fees ================================================================ SECTION 3: STATE-BY-STATE QUICK REFERENCE (10 Most Common States for Freelancers) ================================================================ State | Filing Fee | Processing Time | Annual Fee / Report ------+-------------+---------------------+--------------------- CA | $70 | 5–10 business days | $800/yr franchise tax | | | + $20 biennial report ------+-------------+---------------------+--------------------- TX | $300 | 1–3 business days | No state income tax; | | (online) | No annual report fee ------+-------------+---------------------+--------------------- NY | $200 | 1–5 business days | $9 biennial report | | | + publication requirement | | | (~$400–$2,000 one-time) ------+-------------+---------------------+--------------------- FL | $125 | 1–5 business days | $138.75/yr annual report ------+-------------+---------------------+--------------------- WA | $180 | 1–5 business days | $60/yr annual report ------+-------------+---------------------+--------------------- CO | $50 | 1–3 business days | $10/yr periodic report ------+-------------+---------------------+--------------------- GA | $100 | 5–7 business days | $50/yr annual report ------+-------------+---------------------+--------------------- IL | $150 | 7–10 business days | $75/yr annual report ------+-------------+---------------------+--------------------- WY | $100 | 1–3 business days | $60/yr annual report | (min) | | (or 0.0002% of assets, | | | whichever is greater) ------+-------------+---------------------+--------------------- NM | $50 | 1–3 business days | No annual report | | | required (rare!) NOTES: • Wyoming and New Mexico are consistently the cheapest and simplest. • California is the most expensive by far due to the $800/yr franchise tax. • New York has a unique publication requirement that can cost $400–$2,000 one-time. Factor this in if you're forming in NY. • If you don't live in the state you're forming in, you'll likely need a foreign registration in your home state — adding more cost and complexity. Home state formation is simplest for most solo freelancers. ================================================================ SECTION 4: ANNUAL LLC MAINTENANCE CHECKLIST (Do This Every Year to Keep Your LLC in Good Standing) ================================================================ [ ] 1. FILE ANNUAL REPORT Due date varies by state. Check your Secretary of State's website. Typical cost: $0–$150 depending on state. Mark your calendar — missing this can result in administrative dissolution of your LLC. [ ] 2. REGISTERED AGENT CHECK If you're using a paid registered agent service: confirm renewal. If you're serving as your own registered agent: confirm your address is still current with the state. [ ] 3. BANK ACCOUNT RECONCILIATION Review your business bank account for the year. Confirm all income was deposited to business account. Confirm no personal expenses were paid from business account. (Mixing funds can pierce the corporate veil and void protection.) [ ] 4. OPERATING AGREEMENT REVIEW Review your operating agreement annually. Update if: ownership structure changed, you added members, or business activities changed significantly. [ ] 5. EIN AND TAX RECORDS CHECK Confirm your EIN is on file with your accountant/tax software. Collect all 1099s, income records, and expense records. File Schedule C (or S-corp return if elected) with your taxes. If your income exceeded $80k net: consult a CPA about S-corp election status. ================================================================ FREE RESOURCES FROM SOLOSTACK ================================================================ This checklist is free to use and share — no attribution required. More free guides at: https://solostack.madethis.app/resources • Freelance Taxes Guide → /resources/freelance-taxes-guide • Freelance Contract Guide → /resources/freelance-contract-guide • Freelance Retirement Guide → /resources/freelance-retirement • S-Corp Election Calculator → download: freelance-scorp-calculator.txt For the full template library (invoices, proposals, SOPs, and more): https://solostack.madethis.app/lp/freelance-templates ================================================================ Disclaimer: This checklist is for informational purposes only and does not constitute legal or tax advice. Consult a qualified attorney and/or CPA for advice specific to your situation. ================================================================