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Sole proprietorship vs LLC in Illinois
Three common setups for a one-person business, and what actually changes between them.
Sole proprietorship
- No state formation filing. You are in business as soon as you start.
- You are personally liable for business debts and claims.
- Profit goes on Schedule C of your personal return.
- You pay 15.3% self-employment tax on net earnings, plus Illinois income tax of 4.95%.
Single-member LLC
- Formed by filing Articles of Organization, Form LLC-5.5, for $150.
- A $75 annual report is due every year.
- Separates business liability from your personal assets, as long as you keep finances separate.
- Taxed the same as a sole proprietorship by default: the IRS treats it as a disregarded entity.
How to start an LLC in Illinois →
LLC with an S-corp election
- You pay yourself a reasonable W-2 salary through payroll.
- Payroll tax applies only to that salary, not to the remaining profit.
- More admin: running payroll and filing Form 1120-S.
- Illinois adds a 1.5% Personal Property Replacement Tax on net income.
Rule of thumb, not a threshold: the S-corp conversation usually starts when net profit is steadily around $40,000-$80,000 or more. Talk to a CPA before electing.
S-corp election, payroll obligations, and Illinois taxes →
Side-by-side
| Sole proprietorship | Single-member LLC | LLC + S-corp election | |
|---|---|---|---|
| Startup cost (state) | $0 state filing | $150 (Form LLC-5.5) | $150 to form, plus CPA and payroll setup |
| Ongoing state cost | None | $75 annual report | $75 annual report, plus payroll and tax filing costs |
| Liability | Owner personally liable | Business liability separated from personal assets | Same separation as an LLC |
| Federal taxes | Schedule C; 15.3% self-employment tax on net earnings | Same as sole prop by default (disregarded entity) | Payroll tax only on your W-2 salary; Form 1120-S |
| Illinois taxes | 4.95% income tax | 4.95% income tax | 4.95% income tax plus 1.5% Personal Property Replacement Tax on net income |
| Admin burden | Lowest | Low | Highest: payroll, separate return |
| Best for | Low-risk work, testing an idea | Work with liability risk or clients who want an entity | Steady higher profit (rule of thumb: around $40k-$80k+) |
The series LLC, in brief
A series LLC is one LLC with separated "series" inside it, each with its own assets and liabilities. Filing costs $400 in Illinois. It is mostly used by people who hold multiple properties or run several business lines; most solo service businesses don't need one.
Series LLC costs and liability requirements →
Not sure which fits? Try the Structure Finder or ask for help. Call (331) 261-4788
General information, not legal or tax advice.