Difference Between Sole Proprietorship and LLC
The main difference between a sole proprietorship and an LLC is that an LLC protects your personal assets if your business is sued. An LLC legally separates the owner’s personal assets from the business.
Tax Filing and Treatment
The IRS treats one-member LLCs as sole proprietorships for tax purposes. This means the LLC itself does not pay taxes. As the sole owner, you report all LLC profits or losses on Schedule C with your 1040.
LLC Advantages and Disadvantages
The real advantage of an LLC over a sole proprietorship is liability protection. The disadvantage of an LLC is higher payroll taxes than a sole proprietorship. An LLC can be taxed as a sole proprietorship, partnership, or corporation.
Sole Proprietorship to LLC Conversion
Sole proprietorships don’t provide liability protection. But LLCs do. Another difference is an LLC is more formal and legal than a sole proprietorship. Converting a sole proprietorship to an LLC can help grow your business and protect property.
Using the Same EIN
If you had an Employer Identification Number (EIN) as a sole proprietor, you can continue using the same EIN for the LLC.
LLC Taxation and EIN
Single-member LLCs and sole proprietorships are taxed the same, with taxes flowing to owners. However, LLC owners can choose S corporation status. Once an EIN is assigned to a business entity, it becomes the permanent Federal taxpayer identification number for that entity.
EIN Application for LLC
When getting an EIN for an LLC owned by an American citizen (or citizens), one of the LLC Members must be the EIN Responsible Party. Non-US residents and non-US citizens cannot apply for an EIN online.