Quick answer
An LLC is a legal structure you form with the state; how it's taxed is a separate choice. A single-member LLC is taxed like a sole proprietor by default (Schedule C), and a multi-member LLC like a partnership (Form 1065). An S-corp election (Form 2553) can lower self-employment tax once profits are high enough, but it adds payroll and a separate return.
"Should I form an LLC?" is one of the most common business questions online, and the answers are often confusing because two different things get mixed up: the legal entity and the tax classification. Untangle those, and the decision gets much simpler.
An LLC is legal, not tax
You form an LLC with your state. In Georgia, that's the Secretary of State: Articles of Organization cost $110, and you file an annual registration between January 1 and April 1 each year starting the year after you form ($60 total). Miss it and the state can dissolve your LLC.
Forming an LLC can protect your personal assets from business liabilities. What it doesn't do on its own is lower your taxes or unlock special deductions.
How the IRS taxes an LLC by default
One owner: the IRS ignores the LLC for income tax and you report profit on Schedule C with your personal return, just like a sole proprietor. Two or more owners: it's taxed as a partnership and files Form 1065, due March 15 for calendar-year businesses. Late partnership and S-corp returns cost $255 per owner, per month.
Either way, profit is subject to self-employment tax of 15.3% (Social Security and Medicare) once net earnings reach $400, on top of income tax.
Forming an LLC doesn't lower your taxes by itself. The tax election is a separate decision.
Where the S-corp election comes in
An LLC can elect to be taxed as an S corporation by filing Form 2553. Then you pay yourself a reasonable salary through payroll, and profit above that salary isn't hit with self-employment tax. That's where the savings come from.
The trade-offs: you'll run payroll, file a separate Form 1120-S (due March 15), and the salary has to be defensible. The IRS can reclassify distributions as wages if your pay is unreasonably low. For many businesses the math starts to make sense somewhere around $60,000 to $80,000 of profit, but that's a rule of thumb, not a law; it depends on your numbers.
Timing matters. Form 2553 is due within 2 months and 15 days after the start of the tax year it takes effect. Late-election relief exists, but it's easier to get it right the first time.
What every business owner should set aside
One of the most common questions online is "How much should I set aside?" There's no universal percentage, because it depends on your profit, your other income and your state. What's universal: tax is owed on profit, not revenue, and if you expect to owe $1,000 or more, the IRS expects quarterly estimated payments on April 15, June 15, September 15 and January 15. Deductions must be ordinary and necessary business expenses; the personal share of mixed-use costs doesn't count.
Two quick tips
Get your EIN directly from IRS.gov. It's free and issued instantly; you never have to pay for one. And keep business and personal money in separate accounts from day one.
Not sure which setup fits?
Entity and tax choices are easier to set up right than to unwind later. Call us at (800) 850-5237 for a free 30-minute call. We'll look at your numbers and tell you whether an LLC, an S-corp election, or neither makes sense yet.
General information, not tax advice for your situation. Facts checked against IRS and Georgia sources as of October 2026; rules change, so confirm before acting. Sources: IRS: Single-member LLCs, IRS: S corporations, IRS: Form 2553 instructions, IRS: S-corp compensation, IRS: Self-employment tax, IRS: Estimated tax FAQ, IRS: Get an EIN, IRS: Publication 334, Georgia Secretary of State: filing fees.