LLC vs sole proprietorship for a 1099 or side business

This page is general information for a US person earning 1099 or other self-employment income in one state. It is not a determination of anyone’s tax home, nexus, or liability. Facts change the answer; a CPA and a lawyer in that state are the people who apply them.

The default is a sole proprietorship

An individual who goes into business without filing articles with a secretary of state is a sole proprietor for federal income tax. Business profit and loss go on Schedule C of Form 1040. Net earnings from self-employment of $400 or more generally mean Schedule SE as well. No SOS control number is required to be a sole proprietor. Local business licenses and tax accounts can still apply.

A 1099-NEC from a client does not, by itself, require an LLC. It reports nonemployee compensation. The payer’s paperwork is not a state-entity election.

What an LLC changes — and what it does not

An LLC is formed under state law by filing articles of organization. Georgia’s process and the $100 online fee are on How to form an LLC in Georgia.

For federal income tax, a single-member LLC that does not elect corporate treatment is a disregarded entity. IRS Publication 334 and the IRS single-member LLC page say the owner reports the activity on Schedule C (or E or F, if those schedules fit). The owner is not an employee of the LLC for that purpose. Self-employment tax still applies to the net earnings.

So the first-year tax return of a disregarded single-member LLC often looks like the sole-proprietor return, plus whatever the state charges to exist. The filing is for the legal wrapper: a separate entity that can contract, open accounts, and — if the facts support it — keep some business obligations off the owner’s personal balance sheet. An LLC is not a shield for fraud, professional malpractice, unpaid payroll taxes, or a personal guarantee on a bank or card application. Courts and lenders look through sloppy records. Talk to an attorney about what “limited liability” actually covers in the relevant state.

Self-employment tax does not go away because letters follow the name

The IRS states the self-employment tax rate as 15.3%: 12.4% Social Security and 2.9% Medicare. The Social Security (OASDI) piece applies up to the contribution and benefit base. For earnings in 2026, the Social Security Administration publishes that base as $184,500. Medicare has had no earnings cap since 1993. An additional 0.9% Medicare tax can apply above IRS filing-status thresholds; those thresholds are on the IRS self-employment tax page.

Half of the self-employment tax is deductible in figuring adjusted gross income. That deduction does not reduce the self-employment tax itself. Estimated taxes may be due during the year. None of this is unique to an LLC.

When the LLC cost can be worth paying

The Georgia online formation fee is $100 as of Georgia.gov’s June 2026 update, plus a registered agent (free if a member has a qualifying Georgia street address; otherwise a commercial agent’s invoice), plus annual registration every January–April. Those are certain costs. The uncertain benefit is legal separation and operational hygiene:

• Clients or platforms that want a W-9 in a company name and an EIN rather than a Social Security number.
• Contracts that should not be in a personal name.
• A clean split between operating cash and household cash — see parking LLC cash.
• Work that creates contract or premises risk a lawyer says an LLC is actually useful for.

If the activity is a short experiment with small receipts and no counterparty risk, the sole-proprietor default is often the cheaper honest answer until the facts change. Forming an LLC to look busy is a fee, not a strategy.

S corporation election is not step one

A later Form 2553 (S corporation) election changes payroll and reasonable-compensation questions. It does not replace Schedule C on day one, and it is easy to do badly. This page does not walk through that election. A CPA who can see the actual net income should.

Home state versus Wyoming or Delaware

Social media treats Wyoming and Delaware as default formation states. For a person who lives in Georgia and invoices Georgia (or remote) clients from a Georgia desk, those states are extra jurisdictions, not a tax cloak.

• Tax follows the work and the owner, not the articles. Georgia can still tax income earned in Georgia. Filing articles in Cheyenne does not move the person.
• Foreign qualification. Transacting business in Georgia through an out-of-state LLC generally means a Georgia foreign filing, a Georgia registered agent, and Georgia annual registration — on top of the formation state.
• Wyoming’s published fees, as of 1 July 2026: $100 to file domestic LLC articles; $150 for a foreign LLC certificate of authority; annual report license tax of $60 or two-tenths of one mill ($0.0002) on assets located and employed in Wyoming, whichever is greater. Those dollars do not buy Georgia compliance.
• Delaware is a real choice for some venture-backed corporations and multi-state holding structures. It is a poor default for a first 1099. This page does not quote a 2026 Delaware franchise-tax number; confirm any Delaware figure on the Delaware Division of Corporations site before paying it.

Home-state filing wins for most US residents operating in one place. Out-of-state formation is a structure decision with two SOS offices, not a loophole.