What forming
a company
changes.

Federally, “LLC” is not a tax classification

This is the most common misunderstanding of a first year in business, and the IRS states the correction on its own page about limited liability companies.

• A domestic LLC with at least two members is classified as a partnership for federal income tax purposes, unless it files Form 8832 to elect otherwise.
• A domestic LLC with only one member is treated as “an entity disregarded as separate from its owner”, unless it files Form 8832.

Read the second one again. A single-member LLC is taxed, by default, exactly as its owner was taxed the day before it existed. Forming it changed the state-law entity. It did not change the federal tax outcome, and no amount of forming changes it on its own.

Form 8832, the Entity Classification Election, is how you choose something else, and it has a window. The IRS says an election “cannot take effect more than 75 days prior to the date the election is filed, nor … later than 12 months after.” A date nobody mentioned to you is the easiest thing to lose here.

The EIN, and the industry built on charging for it

That warning appears on the IRS page for Employer Identification Numbers because many websites charge people to complete an application that is free through the government.

Applied for online, the number is issued immediately once the application is approved. The one practical trap is the session: it expires after fifteen minutes of inactivity, so it has to be finished in one sitting with the details already in front of you rather than started and returned to.

The tax nobody mentions until it arrives

Self-employment tax is separate from income tax, and most people meet it for the first time as a bill. It is 15.3%, 12.4% for Social Security and 2.9% for Medicare, and it is computed on Schedule SE rather than folded into the income tax calculation.

It begins at $400 of net self-employment earnings, or $108.28 of church employee income, and it applies regardless of your age and regardless of whether you are already drawing Social Security benefits. There is no personal allowance sitting underneath it the way there is for income tax.

The half of it corresponding to what an employer would otherwise have paid is deductible in figuring your adjusted gross income. Note carefully what that does and does not do: it reduces your income tax. It does not reduce the self-employment tax itself.

The Social Security portion stops at a cap on combined wages and net earnings. That cap is reset every year, so take the figure from the IRS page listed below rather than from any article, including this one. A stale wage cap is the most-repeated wrong number on the internet, and it is repeated most confidently.

And nobody is withholding any of it for you

An employee's tax leaves their pay before they ever see it. Nobody does that for you. The IRS puts it plainly: “Estimated tax is the method used to pay tax on income that is not subject to withholding (for example, earnings from self-employment, interest, dividends, rents, alimony, etc.),” and “Use Form 1040-ES to figure and pay your estimated tax.”

So the bill does not arrive once. It arrives in instalments across the year, and the money for it has to still be there when it does. A first year that looks profitable in the bank account and turns out afterwards not to have been is, very often, exactly this and nothing else.

What is deliberately not on this page

Three things get asked constantly and are not answered here, because a page that answered them for everybody would be wrong for most people reading it.

Whether an LLC protects you personally. Entity liability is state law and it turns on facts: how the business is capitalised, whether formalities are observed, whether personal and business money stay separate. The circumstances in which protection fails are precisely the ones you would want to know about, and they are specific to your situation. Federal tax treatment and state liability treatment are two different questions with two different answers, and the second one is worth a professional.

How to form one. Formation is a state process. The filing office, the fee, the annual or biennial report, the franchise or privilege tax, publication requirements in a minority of states and the registered-agent rules all differ. Your own Secretary of State is the source. A generic eight-step list is wrong somewhere for most readers, and wrong in a way that costs money or a missed deadline.

Whether to elect S-corp treatment. “S-corp” is a tax election that sits on top of an entity you already have; it is not an entity type. Whether it saves you anything is arithmetic on your earnings, your reasonable compensation, your payroll costs and your state's treatment of it. Nobody can do that arithmetic without your numbers, and an article implying otherwise is selling something.

Everything above describes what the IRS publishes. It is not tax advice, and it knows nothing whatever about your situation.