LLC vs Sole Proprietor for Contractors

As a sole proprietor, you and the business are legally the same entity — there's no separate filing, no annual report in most states, and taxes flow directly onto your personal return via Schedule C. It's the easiest way to start, which is why many contractors begin here. The tradeoff is that your personal assets — your house, your savings, your truck if it's in your name — are exposed if the business is sued or can't pay a debt.

An LLC creates legal separation between you and the business, so in most cases a lawsuit or business debt can't reach your personal assets — a meaningful protection in an industry where things can go wrong on a jobsite. It requires state filing fees (commonly $50-$500 depending on state), sometimes an annual report or franchise tax, and more disciplined recordkeeping to maintain that separation (a dedicated bank account, no mixing personal and business funds).

The liability protection isn't absolute — you can still be personally liable for your own negligence — but it's a meaningfully stronger position than operating as a sole proprietor once you're carrying real risk on jobsites and signing contracts with real dollar amounts.

A common trigger point is hiring your first employee, taking on jobs above a certain dollar threshold, or simply reaching a level of revenue where the cost of forming an LLC (often a few hundred dollars) is trivial next to the protection it buys. It's worth a conversation with a local accountant or attorney rather than a generic rule, since state-specific fees and rules vary.