LLC vs. Sole Proprietor - Which Is Best For Your Business In 2025?

Transcript

WEBVTT

00:00:03.084 --> 00:00:10.365
Welcome to the Jason Moss Show, where established online business owners go to increase their income, freedom and impact.

00:00:10.365 --> 00:00:12.310
I'm your host, jason Moss.

00:00:12.310 --> 00:00:13.473
Let's dive in.

00:00:13.473 --> 00:00:17.931
Should you run your business as an LLC or a sole proprietor?

00:00:17.931 --> 00:00:21.185
If you're wondering which of these is best for you, you're in the right place.

00:00:21.185 --> 00:00:30.312
I'm about to answer that question and show you how you might be able to save thousands of dollars every year on your taxes with the right business structure.

00:00:30.312 --> 00:00:48.335
In this episode, you'll learn what an LLC and sole proprietor are, the pros and cons to each, how to save thousands on your taxes with the right business structure, how to set up an LLC and then, finally, make sure you stick around to the end, where I'll share with you which of these is best for your specific business.

00:00:48.335 --> 00:01:02.465
As a multi six figure business coach, I've been running businesses for over 18 years using both LLCs and as a sole proprietor, so, while this is not legal advice, everything I'm going to be sharing with you is from my own personal experience, so you can trust that it will work for you.

00:01:02.826 --> 00:01:05.371
Okay, so let's talk about a sole proprietor first.

00:01:05.371 --> 00:01:18.909
This is the most simple and basic way that you can do business If you open your doors and start accepting money from other people and don't create any sort of company structure for yourself.

00:01:18.909 --> 00:01:30.016
You are considered a sole proprietor and what this means is basically that there's no separation between you and your business in the eyes of the IRS here in the United States.

00:01:30.016 --> 00:01:32.102
So you and your business are basically one.

00:01:32.102 --> 00:01:48.626
All of the income that comes into your business flows through, or passes through to your personal taxes, which means you report that income on your personal taxes as part of a form called a schedule C makes it really easy to do your taxes.

00:01:48.626 --> 00:01:59.201
Again, this is like the simplest, most basic way to set up a business, and it's the way that many people operate a business, at least when they're getting started.

00:01:59.201 --> 00:02:07.500
Now, on the other hand, we've got an LLC, which is an entity, a type of structure that you can basically create.

00:02:07.500 --> 00:02:11.432
That creates a layer of separation between you and your business.

00:02:11.432 --> 00:02:21.245
So an LLC is basically a limited liability company, and when you create an LLC, you're basically creating a structure that exists separate from you.

00:02:21.245 --> 00:02:36.185
Now, this structure will separate you from your business and the revenue and income coming into the business can be taxed in different ways depending on how you set up your LLC in the eyes of the IRS.

00:02:36.185 --> 00:02:42.868
So there are a number of pros and cons to each of these and it's not that one is right for everyone.

00:02:43.371 --> 00:02:47.724
The pros to a sole proprietorship is it's the easiest to set up.

00:02:47.724 --> 00:02:51.854
It doesn't require you creating any sort of additional structures.

00:02:51.854 --> 00:02:56.153
Basically, you just open your doors on day one and start accepting money.

00:02:56.153 --> 00:02:58.784
There are no additional forms to fill out.

00:02:58.784 --> 00:03:03.644
All of your income comes in on your personal taxes, so it makes it really simple to do your taxes.

00:03:03.644 --> 00:03:12.561
When I was running as a sole proprietor, I used TurboTax and I filed all of my taxes myself and it was super easy to do this.

00:03:12.561 --> 00:03:18.820
You basically just report your income on your taxes and it just makes it incredibly easy to file.

00:03:19.222 --> 00:03:23.631
You can still do a lot of the things that you can do as an LLC.

00:03:23.631 --> 00:03:25.367
Pretty much I mean most of the things you can do as an LLC.

00:03:25.367 --> 00:03:27.925
Pretty much I mean most of the things you can do as an LLC, so you can still accept money.

00:03:27.925 --> 00:03:30.099
You can still open a separate bank account.

00:03:30.099 --> 00:03:41.572
You can even do business under a business name that's separate from your personal name, using what's called a DBA or a fictitious business name.

00:03:41.572 --> 00:03:44.532
So a lot of the things that you can do as an LLC.

00:03:44.532 --> 00:03:52.133
You can do as a sole proprietor, and this is why it's really the simplest, most basic, easiest way to get started.

00:03:52.939 --> 00:03:57.049
The cons to being a sole proprietor there are really two big ones.

00:03:57.049 --> 00:04:02.307
The first is that there is no liability protection as a sole proprietor.

00:04:02.307 --> 00:04:16.988
So if you get sued as a business because you and your business are basically one the person who sues you can basically go after all of your personal assets and there's no separation from your personal assets versus the business.

00:04:16.988 --> 00:04:25.637
As a LLC, there's a layer of separation there that protects you from that liability on a personal standpoint.

00:04:25.637 --> 00:04:35.687
The other main con to being a sole proprietor is there is no tax advantages, particularly when you get past a certain level of income, and we'll talk about that in a minute.

00:04:35.687 --> 00:04:44.201
But as you start making more in your business, you can actually save more money on your taxes by being an LLC versus a sole proprietor.

00:04:44.201 --> 00:04:48.649
You don't get to take advantage of those tax savings when you're a sole proprietor.

00:04:49.451 --> 00:04:52.641
Now there are some pros and cons to being an LLC as well.

00:04:52.641 --> 00:05:01.028
The biggest pros are really number one you get that liability protection, so if somebody sues you, it's harder for them to go after your personal assets.

00:05:01.028 --> 00:05:21.146
The other big pro and this is the reason why I set up an LLC and why I recommend that many people do set up LLCs is because past a certain level of income, you can actually save quite a bit of money on your taxes by having an LLC and electing to be taxed as what's called an S-corp.

00:05:21.146 --> 00:05:38.185
Now that sounds like a bunch of my mumbo jumbo, but basically what this means is so when you're a sole proprietor, all of the income coming in your business passes through to your personal income taxes and all of that income gets taxed at your personal income tax rate.

00:05:38.185 --> 00:05:47.399
So you pay Social Security, you pay Medicare, you pay all of the normal income tax percentages on that income that's coming into your business.

00:05:48.041 --> 00:06:00.701
When you are an LLC and you elect to be taxed as what's called an S-Corp, that income coming into your business that you end up paying yourself can be split into two separate parts.

00:06:00.701 --> 00:06:09.149
So you can pay part of that as a salary to yourself and you pay all of the normal income tax on that salary.

00:06:09.149 --> 00:06:23.774
But you can take the other part as what's called a dividend, and that dividend part that you pay yourself you don't have to pay self-employment taxes on that part, which right now in the United States are 15.3%.

00:06:23.774 --> 00:06:31.370
So you save 15.3% on all of the money that you pay yourself as a dividend.

00:06:31.370 --> 00:06:35.701
So, like in my business right now, depending on the year it looks a little bit different.

00:06:35.701 --> 00:06:45.555
But let's say, 50% of the income that I pay myself is given to me as a salary and 50% is paid to me as a dividend.

00:06:45.555 --> 00:06:55.129
So I save 15.3% on half of my income in taxes, which for me works out to a lot of money.

00:06:55.129 --> 00:06:59.516
It could be tens of thousands of dollars every single year on my taxes.

00:06:59.516 --> 00:07:08.728
So one of the biggest advantages to being an LLC, particularly past a certain level of income, is that you can actually save quite a bit of money on your taxes.

00:07:08.728 --> 00:07:11.737
This could be thousands of dollars a year as a business owner.

00:07:11.737 --> 00:07:15.247
That's getting basically handed to you back into your pocket.

00:07:16.074 --> 00:07:25.468
The cons to having an LLC and there are some big ones the biggest one is that there's a lot of complexity that's involved in setting up an LLC.

00:07:25.468 --> 00:07:33.009
It's not crazy to do to the point where it doesn't make sense, but there's more forms to fill out.

00:07:33.009 --> 00:07:36.180
You have to file more things on a regular basis.

00:07:36.180 --> 00:07:41.790
There's a lot more complexity than when you're running a sole proprietor or as a sole proprietor.

00:07:41.790 --> 00:07:46.283
So it's more complicated to set up, there's more paperwork to maintain.

00:07:46.283 --> 00:07:49.665
There's also some fees associated with running an LLC.

00:07:49.665 --> 00:07:57.463
Sometimes, depending on the state that you're in, you might have to pay some additional fees to either file or maintain that LLC.

00:07:57.463 --> 00:08:01.480
Particularly in states like California, this can be quite expensive.

00:08:01.480 --> 00:08:05.468
So there are some pros and cons to having an LLC.

00:08:05.468 --> 00:08:17.103
Now, when it comes to my recommendation for which one is best for you this is probably why you came here which of these is going to be best for you?

00:08:17.103 --> 00:08:18.487
Here's my recommendation.

00:08:19.175 --> 00:08:36.087
If you are making over $100,000 in your business or you're in a business where the risk of getting sued is higher, then you probably want to set up an LLC.

00:08:36.087 --> 00:08:49.269
In terms of the tax savings when you have an LLC, they really only start to make sense and there really only starts to be that benefit when you're making over $100,000.

00:08:49.269 --> 00:08:57.090
Because, remember, as an LLC you have to also pay some fees to actually set up the LLC and maintain the LLC.

00:08:57.090 --> 00:09:05.607
So in my experience, around that $100,000 mark, that's where the benefits of the tax savings actually outweigh the cost of setting up the LLC.

00:09:05.607 --> 00:09:22.369
So, depending on where you're at in your business that potentially makes sense for you, or if you're in a business where the risk of being sued might be a little bit higher, you want to have an additional layer of that protection and that separation between you and your business.

00:09:22.369 --> 00:09:24.275
That's when having an LLC makes sense.

00:09:24.836 --> 00:09:39.610
On the other hand, if you're just getting started or you're making under $100,000 in your business, I recommend that you just keep it simple operate as a sole proprietor If the risk of getting sued is low, if you're not worried about that and you just want the easiest, simplest way to get started.

00:09:39.610 --> 00:09:42.255
This was how I got started as a business coach.

00:09:42.255 --> 00:09:53.471
As an online business owner, I've operated as a sole proprietor until I got to the place where I was making over $100,000 a year and then I set up an LLC and now we run as an LLC today.

00:09:53.471 --> 00:09:58.147
Now, if you do want to set up an LLC, there are different ways that you can go about this.

00:09:58.147 --> 00:10:03.245
It's not crazy complicated, but it's also not crazy simple either.

00:10:03.245 --> 00:10:21.923
So my recommendation is and this is how I set up our LLC is I actually have an accountant that I work with who does all of my taxes today, and I just went to him and he walked me through the process and I actually did it myself, but I did it with his help, so he was guiding me and showing me what forms to fill out.

00:10:22.315 --> 00:10:24.423
There is, again, some complexity involved.

00:10:24.423 --> 00:10:30.424
There are a number of different forms you have to file to set this up, so I wouldn't recommend doing it completely alone.

00:10:30.424 --> 00:10:42.907
I would recommend either going to an accountant who can help you with this, or there are several online services that you can actually walk through to set up an LLC that will basically guide you through the whole process.

00:10:42.907 --> 00:10:49.785
There's a couple I recommend LegalZoom is one of them, zen Business is another and Rocket Lawyer is a third.

00:10:49.785 --> 00:10:57.272
There are so many other options out there, but these are three services that will be able to assist you when it comes to setting up your LLC.

00:10:58.155 --> 00:11:08.509
So, in short, my recommendation is, if you're over $100,000 in revenue annual in your business, or if you're in a high risk niche, then an LLC is probably for you.

00:11:08.509 --> 00:11:18.900
If you're under $100,000 and you're operating in just kind of a simple way to get started, a sole proprietor makes sense and remember, you can always change down the line.

00:11:18.900 --> 00:11:24.357
So you can get started as a sole proprietor and then you can switch things down the line, which is what I did.

00:11:24.357 --> 00:11:33.727
So it's not crazy to do this, and if you just want the simplest way to get started again, sole proprietor is going to be that answer for you.

00:11:33.727 --> 00:11:56.562
Now, if you are a online business owner who is looking for help growing your business because, let's be honest, having the right company structure is great, but making money is even better and I want you to get to the place where you can get over that $100,000 a year mark so you can have an LLC If you're wanting guidance and help actually making that happen.

00:11:56.562 --> 00:12:00.244
You're an online business owner who sells coaching, consulting courses.

00:12:00.244 --> 00:12:06.482
You're an expert, an author, someone who is transforming lives in some meaningful way through the work that you do in your online business.

00:12:06.916 --> 00:12:13.815
I put together a free million dollar online business training that walks through the proven four-step roadmap.

00:12:13.815 --> 00:12:20.442
I've personally used to sell well over a million dollars of coaching, consulting courses online and get this completely free.

00:12:20.442 --> 00:12:21.879
I'd love to share it with you.

00:12:21.879 --> 00:12:22.826
All you gotta do is go to share it with you.

00:12:22.826 --> 00:12:28.402
All you got to do is go to jasonmosscom forward slash growth.

00:12:28.402 --> 00:12:32.187
That's jasonmosscom forward slash g?

00:12:32.187 --> 00:12:32.567
R?

00:12:32.567 --> 00:12:36.357
O w th to get the free training right now.

00:12:36.357 --> 00:12:37.301
Hope to see you there.

00:12:37.301 --> 00:12:38.464
Hope you enjoy this.

00:12:38.464 --> 00:12:39.654
Hope this was helpful for you.

00:12:39.654 --> 00:12:42.100
If you're watching on YouTube, leave a comment down below.

00:12:42.100 --> 00:12:45.386
Let me know LLC or sole proprietor which are you going to go with?

00:12:45.386 --> 00:12:48.645
Which do you think is best for you based on what you learned in this video?

00:12:48.645 --> 00:12:51.417
Would love to hear from you and I'll see you in the next episode.

00:12:52.720 --> 00:12:55.267
Thanks so much for listening to this episode of the podcast.

00:12:55.267 --> 00:13:00.506
I hope you enjoyed it and if you're listening on Apple Podcasts or Spotify, consider leaving a review.

00:13:00.506 --> 00:13:04.620
It really helps the show and will help new people discover it.

00:13:04.620 --> 00:13:06.528
And if you enjoyed this episode, share it with a friend.

00:13:06.528 --> 00:13:09.839
There's so many people out there that could benefit from this material.

00:13:09.839 --> 00:13:24.808
I want to pass this along, and if you're serious about growing your online business and ready to unlock your next level of income and growth, I want you to check out my free million dollar online business training now where I walk through the four-step roadmap.

00:13:24.808 --> 00:13:30.663
I've personally used to sell well over a million dollars of coaching, consulting and courses online.

00:13:30.663 --> 00:13:36.660
You can watch this right now for free by going to jasonmosscom forward slash growth.

00:13:36.660 --> 00:13:42.568
That's jasonmosscom forward slash G-R-O-W-T-H.

00:13:42.568 --> 00:13:43.791
I hope to see you there.