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What's the practical difference between a sole proprietor, an LLC, and an S-corp?

They're really two separate questions — legal structure and tax structure. A sole proprietorship is the default when you earn 1099 income with no paperwork; you and the business are legally the same, so your personal assets are exposed. An LLC is a legal wrapper formed at the state level that gives you liability protection and a more professional footing, but by default it's taxed exactly like a sole proprietorship (or a partnership if there are multiple owners). An S-corp isn't an entity at all — it's a tax election an LLC or corporation can make to change how profit is taxed, potentially cutting self-employment tax. So a common path is: start as a sole proprietor, form an LLC for protection, then elect S-corp treatment once profits are high enough to justify it. Map your own situation with wealthserene.com/tools/self-employed-hub.

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Educational disclaimer. Everything on WealthSerene.com is educational and is not investment advice. Projections and calculations are illustrative; actual results depend on market conditions, your situation and factors outside this tool’s scope. For a decision specific to your situation, consult a qualified financial professional. View full disclosures