Do LLCs Pay Self Employment Tax?

I get this question a lot, so thought I would post a quick answer for those who have this same question…

Basically it depends on how you set your LLC up.  LLCs are really legal entities, not tax entities.  When you setup your LLC, you can choose to be taxed as a sole proprietor, partnership or corporation.  If you choose corporation, you can choose to be a C-Corporation or an S-Corporation.  It’s a little more complicated than that, but you get the idea.

If you are a sole proprietor when you setup your LLC, then most likely you will continue to be taxed as a sole proprietor.

As a sole proprietor, you are subject to the self employment tax, which is 15.3% of your net profits.

For more information on the self employment tax, please visit these resources:

Self Employed Taxes on the IRS website
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