Sole proprietor or LLC? Doing business under your own name in the US

You are a sole proprietor by default

There is no federal registration to become a sole proprietor. When you invoice a client, sell on Shopify or receive creator payouts in your own name, the business is you. The IRS calls this a sole proprietorship.

You report business income and expenses on Schedule C (Profit or Loss from Business) attached to your Form 1040, and self-employment tax on Schedule SE. Estimated tax payments use Form 1040-ES.

Your state or city may still require a business license or a trade-name (DBA) filing if you use a name other than your own. Check with your state and city before you start trading under a brand name.

What an LLC changes for federal tax — and what it does not

A limited liability company is formed under state law. For federal income tax, a single-member LLC is disregarded as separate from its owner unless it elects to be treated as a corporation (Form 8832). If you own it as an individual, its income still goes on your Schedule C.

An LLC with more than one member is a partnership for federal tax by default and files Form 1065. That is a different setup with its own bookkeeping needs (each member’s capital account).

Self-employment tax applies either way

If your net earnings from self-employment are $400 or more, you owe self-employment tax and file Schedule SE. For 2026 the rate is 15.3%: 12.4% social security on the first $184,500 of combined wages and self-employment earnings, plus 2.9% Medicare. An extra 0.9% Medicare tax applies above $200,000 for single filers.

To pay self-employment tax you need a Social Security number or an ITIN. Forming a single-member LLC does not change this calculation unless the LLC elects to be taxed as a corporation.

How to decide

• Starting small, testing an idea, or freelancing for a few clients: a sole proprietorship lets you invoice today. Keep business money in a separate account from day one so your records stay clean.
• Signing larger contracts, hiring, or holding inventory and leases: talk to an attorney in your state about whether an LLC’s liability separation is worth its filing and annual-report costs there.
• Not a US person but selling to US customers through a US LLC: a foreign-owned single-member LLC does not file Schedule C. It has its own reporting (pro forma Form 1120 with Form 5472). Get advice before you form it.

This guide explains federal tax treatment. It is not legal advice about liability, and state rules differ.