Complete Guide to LLCs

Most LLC owners discover an expensive surprise during their first tax season: they're paying way more in taxes than they expected. Here's what happens—you form your LLC, thinking you've set up the perfect business structure, then your accountant drops the bomb that you owe 15.3% on top of your regular income tax.

The frustrating part? Your LLC's legal structure (which protects your personal assets) operates independently from how the IRS taxes your business. You could have two identical LLCs earning the same revenue, and one owner might pay $15,000 more in taxes simply because they made different elections when setting up their tax treatment.

Your tax bill depends on choices you make—choices many business owners don't even realize they're making. Should you stick with default tax treatment, or file paperwork to be taxed differently? That decision alone can shift thousands of dollars between your pocket and the Treasury's.

What Is Self-Employment Tax and How Does It Work

Here's the situation business owners face: employees and their employers each kick in 7.65% toward Social Security and Medicare. That's 15.3% total going to fund these programs. When you run your own business, you're wearing both hats—you're simultaneously the worker and the boss. The IRS expects you to pay the entire 15.3% yourself.

This 15.3% divides into two buckets. Social Security grabs 12.4% of your earnings up to $168,600 in 2026. Once you cross that threshold, the Social Security portion stops. Medicare tak...