Do I Need an LLC to Freelance? (Sole Proprietorship vs LLC vs S Corp)

Disclaimer: The information provided in this blog post is for general informational purposes only and does not constitute legal, tax, or financial advice. Every freelance business is unique, and the appropriate business structure may vary depending on individual circumstances. Readers are advised to consult with a qualified attorney, accountant, or tax professional to determine the best legal entity for their specific situation.

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Introduction

When I first started freelancing in college, I didn’t think twice about contracts, legal entities or tax liabilities. I was just too excited that someone was willing to pay me $250 a month to manage their social media accounts…

But once I got serious about freelancing, I realized I needed legal structure. Just like you, I Googled “Do I need an LLC to Freelance?” and got overwhelmed with a million articles and Youtube videos.

My goal for this freelancer guide is to break down your options as simply as possible — the way I wish I had when I started my freelance marketing career.

Before we dive in, there are 3 main considerations that should be top of mind when evaluating your options:

1. Legal liability
2. Tax implications
3. Professional image

It’s also important to note that there are endless options to structure your freelance marketing business, but this article will only focus on the most popular three: sole proprietorship, LLC, S Corp.

If you’re a freelance marketer considering your options, you should have a clear understanding of which structure is best for you after reading this article. Sole proprietorship, LLC, S Corp.

Option 1: Sole Proprietorship

What is it?

A sole proprietorship is a business owned and run by one person that is not incorporated. It’s basically doing business as yourself. It is easy to set up but provides no legal separation between you and the business.

Pros

• Virtually zero setup: it’s easy, quick and straightforward to start a sole proprietorship. You’re not required to formally register your business with federal or state offices. You’re also not required to file for an EIN, and can use your SSN instead to start immediately. You simply start running your business under your own name.
• No registration fees: Unlike most LLCs, sole proprietors don’t carry a registration fee.

Cons

• Unlimited personal liability: legally speaking, there is no difference between your personal assets and your business’s. If a client sues you for any reason, your personal assets are on the line. That includes your car in the driveway.
• “Self-employment taxes”: also known as Social Security and Medicare. Typically, the burden of these taxes is split between employers and employees, but in the sole proprietorship scenario, you’re both the employer AND the employee. This means you’re responsible to cover the whole thing.
• ‍Pass-through taxation: If you’re working full-time for a company and freelancing as a side hustle, your freelance income will be added on top of your W2 income (your full-time job income). This means your business income could push you into a higher tax bracket, and potentially reduce the value of that extra income you generated freelancing.

➡ Best for: one-off, or part-time freelancers offering services that are unlikely to create legal disputes.

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Option 2: Limited Liability Company (LLC)

What is it?

An LLC is a business structure that offers limited protection to the personal assets of its owner. It stands for “limited liability” which means its members are not personally liable for the company’s debts and lawsuits. However, standard LLCs share similar tax burdens sole proprietorship do.

Pros

• Asset and liability protection: perhaps the most important benefit of an LLC. Operating under an LLC protects your personal assets from legal actions taken against your business. If a client sues you for whatever reason, you’re only partially liable.
• Professionalism: Doing business as an LLC and marketing yourself as a proper company can make a difference in perceived value and help you attract and close more business.
• Scalability: Forming an LLC gets you access to an Employer Identification Number (EIN). This allows you to hire employees if your business takes off the ground.‍
• Ability to open a business bank account: That same EIN allows you to open a business bank account.

Cons

• Higher setup and maintenance costs: most states charge a one-time filing fee when you form your LLC, others might also charge an annual fee that can quickly increase in size depending on your annual income.
• “Self-employment taxes”: just like a sole-proprietor, LLC owners who don’t elect for S Corp taxation are liable for extra self-employment taxes.
• More complex paperwork: some states require specific annual or bi-annual requirements. For example, California requires you to file a Statement of Information with the Secretary of State every other year. Failure to file can trigger penalties. Make sure you understand all the requirements from your state before filing for an LLC.‍
• More complex business tax: while most sole proprietors DIY their taxes, LLC owners will want to contract tax professionals to help file properly and avoid penalties or audits

➡ Best for: freelancers with moderate to high business risks and part-time freelancers considering a shift to full-time freelancing

👉 If you need help starting your LLC, try Collective. They helped me register my LLC in less than 10 minutes, all online.

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Option 3: S Corporation (S Corp)

What is it?

It’s important to understand that an LLC is a legal business structure, while S corporation is a tax classification. That means when you hear someone talk about an S Corp, they’re referring to an LLC that elected to be taxed as an S Corp.

You have to form an LLC before you can elect to be taxed as an S Corp. Therefore, an S Corp is nothing more than an LLC, but with a different tax election with the IRS.

Pros

• Tax savings: Unlike a regular LLC where you’re technically self-employed and liable for high self-employment taxes, an S Corp gives you the ability to hire yourself as an employee in the business and save on self-employment taxes. This Gusto calculator explains it clearly.

Cons

• More complex: S Corps require you to run payroll and file additional tax withholdings. Throughout the year, you have to pay yourself a regular paycheck and withhold taxes, but you’re also required to pay quarterly estimated taxes for your business. You’ll likely need an extra payroll tool like Gusto, and your CPA might charge you more to handle all the required paperwork.

➡ Best for: full-time freelancers earning significant income (>$80k).

👉 If you need help starting your LLC, try Collective. They helped me register my LLC in less than 10 minutes, all online.

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When to Choose an LLC Over an S Corp

Here’s where the whole “S corp vs LLC” debate gets messy. A lot of freelancers think an S Corp is the “next level”, like a badge that means you’ve made it. But in reality, an LLC is often the smarter move, especially when you’re still early in your freelance journey.

If your business is earning under roughly $80K/year in profit, the savings from an S Corp usually don’t offset the added costs and complexity. Payroll software, bookkeeping fees, CPA management — it all adds up fast. In that case, an LLC gives you the legal protection you need, keeps taxes simple, and doesn’t force you into running payroll for yourself every month.

In other words:

If you want protection and professionalism without feeling like a part-time accountant, an LLC is the quiet winner.

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When to Choose an S Corp Over an LLC

Once your freelance network grows and your profit passes $80K, an S Corp often becomes the smarter move. You can pay yourself a salary and take profits separately to reduce self-employment taxes.

Yes, it means payroll. Yes, you’ll probably want a CPA. But if the tax savings outweigh the hassle (and they often do at this income level), an S Corp becomes a powerful upgrade.

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When to Choose an LLC Over a Sole Proprietorship

The LLC vs sole proprietorship conversation always comes down to one thing: risk.

A sole proprietorship is easy, but it also means you and your business are legally the same thing. If a client sues you, refuses payment, or claims damages, your personal assets are on the line: savings, car, home… all of it.

An LLC separates your business from your personal life. It lets you have a business bank account, an EIN instead of using your Social Security number, and a more professional presence when dealing with corporate clients. Many brands and agencies even prefer (or require) independent contractors to operate under an LLC for billing and compliance.

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When to Choose a Sole Proprietorship Over an LLC

But let’s be clear — the simplest option still has its place.

If you’re just testing out freelancing, doing small or occasional projects, or barely earning anything yet, a sole proprietorship is a perfectly reasonable starting point. Zero paperwork, zero registration, zero ongoing fees. You get paid, you report income, that’s it.

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3 Reasons Why Freelance Marketers Should Form an LLC in 2026

If you’re still freelancing under your personal name in 2026, this is the year to level up. An LLC is one of the simplest ways for solo marketers to look professional, protect their money, and run a real business (without drowning in paperwork or legal fees).

Reason #1: Protect Your Personal Assets

As a sole proprietor, you are the business. If a client refuses to pay, accuses you of causing damages, or something goes sideways, your personal finances are exposed. An LLC separates you from your business legally. Your savings, your car, your house are protected. 

Reason #2: Better Tax Advantages (and More Control of Your Money)

Once you have an LLC, you can open a business bank account, keep money cleanly organized, deduct more legitimate expenses, and even elect S-Corp taxation to reduce self-employment tax. For many freelancers earning over ~$50K, the LLC practically pays for itself in tax benefits.

Reason #3: Clients Take You More Seriously

An LLC sign shows that you’re not a hobbyist but a real business. Your contracts look more professional, your proposals carry more authority, and your name holds more credibility. You’ve already been doing the work. Forming an LLC just makes it official.

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Step-by-Step: How to Set Up Your LLC

If you’ve been putting off the LLC because it sounds complicated, here’s the good news: it’s way easier than most freelancers think. You don’t need a lawyer, you don’t need to read through endless IRS forms, and you definitely don’t need to spend thousands of dollars. With the right service, you can complete the entire setup online in under 10 minutes.

1. Pick your business name

Something professional, something clean, and something not already taken in your state’s database.

2. Choose a Registered Agent

This is the person or service who receives official mail and legal documents on your behalf. Most freelancers use a service so their personal address stays private.

3. Your LLC paperwork gets filed

Once the forms are submitted to the state and approved, your business officially exists as a legal entity.

4. Get your EIN

Think of it as your business’s Social Security Number. You’ll need it to pay taxes, sign contracts, or hire people in the future.

5. Open a business bank account

This keeps your finances clean and separate, which makes taxes way easier and protects your liability.

If you want all of this handled for you, services like Collective, Inc. can complete the entire process online.

👉 Click here to start your LLC with Collective, Inc.

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TLDR

At the end of the day, picking a structure for your freelance business comes down to your risk level, your affinity for tax-savings, and how complex you’re willing to be with your structure.

For one-off freelancers (~$0-20k a year):

If you’re just starting out in your freelance journey, a sole proprietorship might be the best option for you. It allows you to get started overnight without having to file lengthy paperwork, but it also exposes your personal assets to liability and comes with high self-employment taxes.

For frequent freelancers (~$20-80k a year):

If you’re picking up regular work as a freelancer, but not enough to make a full-time income out of it, a regular LLC might be the best option for you. It provides you with limited liability on your personal assets, gives you more credibility in front of clients, and allows you access to an EIN and business bank accounts. You’re still liable for high self-employment taxes.

For full-time freelancers (~$80k+ a year):

If you’ve made the switch to freelancing full-time, or if you’re getting a significant amount of freelance revenue outside your 9-5 income, an S Corp might be your best option. You benefit from lower self-employment taxes, carry limited liability but also trigger more complex filings and administrative tasks.

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Frequently Asked Questions

Who pays more taxes, sole proprietorship or LLC?

A sole proprietorship and a standard LLC pay taxes the same way, both owe full self-employment taxes unless the LLC elects S Corp status.

What are the tax advantages of forming an LLC if I am a freelancer?

By itself, an LLC does not reduce taxes. The tax savings come only if you elect to have the LLC taxed as an S Corp.

At what income is an LLC worth it?

An LLC is usually worth it when you’re earning regular client income and want liability protection. For tax benefits, most freelancers don’t see savings until $60K–$80K+ profit with an S Corp election.

What is the biggest disadvantage of an LLC?

Higher costs and more paperwork compared to a sole proprietorship. 

What is the biggest disadvantage to a sole proprietor?

Unlimited personal liability — your personal assets can be taken if someone sues you.

Which is better, LLC or S Corp?

Neither is universally better.

• LLC: simpler, cheaper, less paperwork
• S Corp: better tax savings when you earn enough to justify payroll costs

What is a disadvantage of S Corp?

You must run payroll, file extra tax reports, and do more admin. Most freelancers need a CPA or payroll software.

Do freelancers really need LLCs?

No, even many full-time freelancers don’t have one. But an LLC protects your assets, boosts credibility, and opens business banking. It’s one of the cheapest ways to look more professional and reduce risk.

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Final Thoughts

Registering an LLC is one of the fastest ways to level up your freelance business. It gives you more protection, more control, and more options.

So if you’ve been putting it off — today’s the day.

You don’t need a lawyer. You don’t need to file confusing paperwork. And it doesn’t have to cost a fortune.

I recommend using Collective, Inc. — they helped me register my LLC in less than 10 minutes, all online.

👉 Click here to start your LLC with Collective, Inc.