The advice always arrives the same way. A comment under a video. A Reddit thread. A friend who started a Shopify store last year. “You need an LLC.” Usually with a number attached: “you will save like 30% on taxes.”
That last part is wrong, and it is wrong in a way that costs people real money. Not because forming an LLC is a bad idea — often it is a very good one — but because people form it expecting a tax result it cannot produce, feel like they have handled the thing, and then never take the step that actually would have saved them anything.
An LLC is a state-law entity. It is not a tax structure.
There is no such thing as an LLC tax return. Form a single-member LLC and the IRS treats it, by default, as a disregarded entity. Your income and expenses land on Schedule C of your personal return — exactly where they would have landed if you had formed nothing at all. Same self-employment tax. Same brackets. Same number at the bottom of the page.
Form one with a partner and the default is a partnership filing a Form 1065. Still no savings. Just a different form and an extra filing deadline.
If your only reason for forming an LLC is to lower your tax bill, forming it will not lower your tax bill.
What an LLC actually does is separate you, the person, from the business as a legal matter. If something goes wrong and the business gets sued, the LLC is the thing standing between a plaintiff and your personal savings. That is a real, valuable benefit. It is just not a tax benefit, and pretending otherwise sets people up to be disappointed.
The thing people are actually thinking of is the S-Corp election
The tax savings everyone is gesturing at live in a completely separate decision: electing to have your business taxed as an S corporation. An LLC can make that election. So can a corporation. The election is what splits your profit into a reasonable salary, which owes payroll tax, and distributions, which do not. That split is where the money comes from.
So the honest version of the advice is this: the LLC is not the tax move, but it is usually the container you make the tax move inside of. That is why the two get welded together in every comment section on the internet. If you want the actual math on the second decision, we wrote it up in when an S Corp is actually worth it, and you can run your own numbers on the calculator.
When an LLC is worth it on liability grounds alone
Forget taxes entirely for a minute. These are the situations where we tell creators to form one regardless of what the S-Corp math says:
- You sell physical product — merch, supplements, print-on-demand, anything someone could be harmed by or unhappy with.
- You pay contractors. Editors, designers, VAs, and community managers all create relationships that can go wrong.
- You sign brand deals with indemnification clauses. Read one closely sometime. You are often agreeing to cover the brand if your content creates a problem.
- You do anything in the physical world. Live events, meetups, in-person shoots, travel with a crew.
- You have personal assets worth protecting. A house, meaningful savings, a spouse whose finances are entangled with yours.
If two or more of those describe you, form it. That argument stands entirely on its own and does not need a tax justification propping it up.
The costs nobody mentions in the comment section
An LLC is not free, and the ongoing cost varies enormously by state:
- A one-time formation filing fee, typically somewhere between $50 and $500 depending on the state.
- An annual report or franchise tax. Some states charge almost nothing. California charges an $800 minimum franchise tax whether you made $2 million or nothing at all.
- A registered agent, if you do not want your home address in a public database — usually $100 to $300 a year.
- A separate business bank account, which is not optional (more on that below).
- Bookkeeping that has to be actually correct rather than approximately correct, because the entity now has its own financial identity.
None of that is a reason to skip forming one. It is a reason to form one deliberately, in the right state, at the right time — rather than at 1am because a stranger in your comments said you were leaving money on the table.
The thing that matters more than the entity itself
Here is the part that gets skipped. If you form an LLC and keep running income through your personal checking account, you have paid for a liability shield and then handed a future plaintiff the exact argument that dissolves it. Courts call it piercing the corporate veil, and commingling funds is the most common way it happens.
A separate business account is also the difference between bookkeeping that takes two hours a month and bookkeeping that takes a weekend and still produces a number nobody trusts. If you do exactly one thing after reading this, open the account.
The actual decision tree
- Do you have real liability exposure — product, contractors, contracts, physical-world activity, or assets to protect? If yes, form the LLC. That is the whole justification.
- Is your net profit consistently in the range where an S-Corp election starts to pay for itself, roughly $90K to $100K and up? If yes, run that math separately and properly. The election is the tax decision, not the LLC.
- Neither one yet? Open a separate business bank account, get your books clean, and revisit both questions at your next revenue step. You have lost nothing by waiting.
The creators who get this right are not the ones who moved fastest. They are the ones who understood which decision was which. If you want us to look at where you actually sit, that is what a discovery call is for — and if you want the fuller picture of how we work with creators, start on the creator CPA page.