Methodology
The complete primary-source table, calculation framework, refresh cadence, and limitations behind every recommendation on the site. Not legal or tax advice.
01. Primary and named sources
Every claim on the site is anchored to one of the rows below. Secondary references (Nolo, Wolters Kluwer BizFilings, Bloomberg Tax) appear in body copy as cross-references, not authority.
| Source | What the site takes from it | Refresh cadence |
|---|---|---|
| IRS Publication 334 (Tax Guide for Small Business) | Sole proprietor reporting on Schedule C, ordinary and necessary business expenses, SE tax computation, recordkeeping standards. | Annual (post-tax-season release) |
| IRS Publication 3402 (Taxation of LLCs) | Default LLC tax classification rules, check-the-box mechanics, single-member disregarded-entity treatment, multi-member partnership default, when corporate election applies. | Periodic IRS revision |
| IRS Publication 583 (Starting a Business and Keeping Records) | Federal-level entity-choice orientation, EIN process, recordkeeping requirements that affect both sole props and LLCs. | Periodic IRS revision |
| IRS Form 1040 Schedule C + Schedule SE | Schedule C reports business profit / loss for sole proprietors and single-member LLCs. Schedule SE computes the 15.3% self-employment tax (12.4% Social Security capped at the wage base, 2.9% Medicare uncapped, plus 0.9% Additional Medicare above $200k single / $250k MFJ). | Annual (form revision) |
| IRS Form 2553 (Election by a Small Business Corporation) | The S-Corp election form. 75-day deadline for new entities, 15 March of the tax year for existing. Rev Proc 2013-30 governs late-relief. | Annual (form revision) |
| IRS Form 1065 (Partnership Return) + Form 8832 (Entity Classification Election) | Multi-member LLC defaults to partnership taxation and files Form 1065. Form 8832 is the check-the-box election to be taxed as a C-corp. The 60-month rule under Form 8832 instructions restricts re-electing within 5 years. | Annual (form revision) |
| Internal Revenue Code on Cornell Legal Information Institute | Free, primary statute access. Specifically: IRC 7701(a)(3) (check-the-box LLC classification), IRC 1402 (SE tax definition), IRC 199A (QBI deduction), IRC 1361 (S-Corp eligibility), IRC 1362 (S-Corp election and termination), IRC 1374 (S-Corp built-in gains). | Real-time on IRC amendment |
| Revenue Procedure 2013-30 | The IRS procedure governing late S-Corp election relief. Sets the reasonable-cause standard and the procedure for filing Form 2553 after the 75-day / 15 March window. | Periodic revenue-procedure revision |
| SBA.gov - Choose a Business Structure | Federal-level entity-choice guide. Treated as orientation rather than authority - SBA reflects IRS / state rules but does not promulgate them. | Periodic SBA revision |
| Social Security Administration Wage Base | Annual Social Security wage base that caps the 12.4% SS portion of SE tax. 2026 wage base: $168,600. Drives the high-income S-Corp election break-even since SE tax savings shrink above this threshold. | Annual (October release) |
| California Secretary of State + Franchise Tax Board | $70 LLC filing fee, $800 minimum franchise tax (FTB), gross receipts fee schedule ($900 at $250k, $2,500 at $500k, $6,000 at $1M, $11,790 at $5M+), year-1 franchise tax waiver for LLCs formed on or after 1 Jan 2021. | Monthly check; out-of-cycle on FTB schedule change |
| New York Department of State, Division of Corporations | $200 LLC filing fee, $9 biennial fee, Article 14 publication requirement adding $1,000 to $2,000 to total LLC formation cost depending on county. | Monthly check |
| Delaware Division of Corporations | $90 LLC filing fee, $300 flat annual franchise tax. Delaware Court of Chancery and Series LLC statutes referenced for the corporate-law backdrop. | Monthly check |
| Texas Secretary of State + Comptroller | $300 LLC filing fee, no annual report. Texas franchise tax threshold (~$2.47 million gross receipts for 2026) sourced from the Texas Comptroller of Public Accounts. | Monthly check; annual on franchise threshold |
| Florida Department of State - Division of Corporations (Sunbiz.org) | $125 LLC filing fee (Articles of Organization), $138.75 annual report fee (due May 1), $50 fictitious-name (DBA) registration, Florida Statute 605.0304 LLC veil-protection. | Monthly check |
| Other 45 states + DC Secretary of State / Department of Revenue pages | Filing fee, annual report fee, state personal income tax stance, foreign-LLC reciprocity for each remaining state. Indexed in src/data/states.ts and rendered on /cost-comparison plus per-state guide pages. | Monthly first-business-week |
02a. In scope
- +Sole proprietorship vs single-member LLC vs multi-member LLC tax classification
- +Self-employment tax mechanics (15.3% capped at $168,600 SS wage base for 2026, plus 0.9% Additional Medicare above $200k single / $250k MFJ)
- +QBI Section 199A 20% pass-through deduction with 2026 phase-out thresholds ($191,950 single / $383,900 MFJ)
- +S-Corp election break-even math by income tier including S-Corp compliance overhead (payroll, Form 1120-S preparation, reasonable salary defensibility cost)
- +Single-member LLC veil-piercing risks and operating agreement formalities
- +Sole proprietorship to LLC conversion procedure (10-step procedure plus EIN, bank account, contract updates)
- +All 50 states + DC LLC filing fees and annual report fees with state-specific gotchas (California $800, New York publication, Texas franchise threshold, Massachusetts $500, etc.)
- +Formation services 5-year total-cost comparison (Northwest, ZenBusiness, Bizee, LegalZoom, Tailor Brands) with affiliate disclosure
02b. Out of scope
- -Specific tax or legal advice for an individual reader's situation (consult a licensed CPA or business attorney admitted in your state)
- -C-Corp specific optimisation (QSBS Section 1202, accumulated earnings tax, fringe benefits) - covered separately on CCorpVsSCorp.com
- -State PTET (pass-through entity tax) workarounds to the federal SALT cap, which vary materially by state
- -International / cross-border entity structures (CFC rules, GILTI, FDII, Subpart F)
- -Estate-planning entity structures (family LLCs, asset protection trusts, multi-state asset-protection planning)
- -Specific reasonable-salary defensibility analyses by industry (referenced via BLS OEWS but not used to recommend a specific number for any reader)
- -M&A and exit-structure planning (asset sale vs stock sale, IRC 338(h)(10), IRC 336(e) elections)
- -Private Letter Rulings (PLRs) treated as authority for general guidance - PLRs apply only to the specific taxpayer
03. Calculation framework
Self-employment tax
15.3% on net SE income, computed as 12.4% Social Security (capped at the 2026 wage base of $168,600) plus 2.9% Medicare (uncapped) plus 0.9% Additional Medicare on wages and SE income above $200,000 single / $250,000 MFJ. Half of SE tax is deductible above-the-line on Schedule 1. Applies identically to sole proprietors and single-member LLCs taxed as disregarded entities. Source: IRC 1402, Schedule SE instructions.
S-Corp election break-even
S-Corp election reduces SE tax on the distribution portion of income but adds compliance cost: payroll provider ($600 to $1,200 / year), Form 1120-S tax preparation ($1,500 to $3,500 / year), reasonable salary defensibility (BLS OEWS by industry as the supporting reference). Mechanical break-even is typically $50k to $60k net profit; defensible break-even is typically $75k+ once compliance overhead and reasonable-salary requirements are factored in. Source: Rev Proc 2013-30 + Form 2553 instructions + IRC 1361.
QBI 199A deduction
20% deduction on qualified business income for pass-through owners, including sole proprietors, LLC members, and S-Corp shareholders. 2026 phase-out begins $191,950 single / $383,900 MFJ. Specified service trade or business (SSTB) categories (health, law, consulting, financial services, others) phase out completely above the phase-in range. Made permanent under OBBBA Public Law 119-21. Source: IRC 199A.
State filing-fee math
Each per-state guide shows the 5-year total cost (LLC filing fee year 1 + annual report fee years 1 through 5, biennial fees halved to annualised cost). Sole proprietor 5-year cost is $0 in state filing fees (state PIT and DBA registration are separate considerations). Source: each state Secretary of State filing page, verified monthly.
Foreign-LLC double-registration
When out-of-state LLC formation is considered (Delaware, Wyoming, Nevada from a non-resident perspective), foreign-LLC registration in the home state is required to legally do business there. Both states' filing and annual fees apply. The Delaware / Wyoming / Nevada myth math on /cost-comparison shows the worked example for California residents. Source: each state's foreign-LLC registration page.
Operating agreement and veil protection
Five states require an LLC operating agreement by statute: California, Delaware, Maine, Missouri, New York. The other 45 do not require one but every LLC should have one. For single-member LLCs, the operating agreement is the strongest single piece of evidence that the LLC operates as a separate entity, which courts consider when deciding to pierce the corporate veil. Source: state LLC statutes (referenced on /operating-agreement).
04. Refresh cadence
Monthly first-business-week we reread the IRS publications named in section 01, check the IRC sections on Cornell LII for amendment, verify the named state filing-fee pages, and update the LAST_VERIFIED constant in lib/schema. Rolling that one constant forward updates every freshness stamp on the site by construction (footer, hero badges, JSON-LD dateModified across all pages).
Out-of-cycle refresh triggers:
- +IRS publication revision (Pub 334, Pub 3402, Pub 583).
- +State Secretary of State filing-fee change between cycles (California gross receipts schedule, New York publication-cost change, Texas franchise threshold).
- +Internal Revenue Code amendment affecting IRC 7701(a)(3), 1402, 199A, or 1361.
- +New Revenue Procedure superseding Rev Proc 2013-30 (S-Corp late-election relief).
- +Social Security Administration annual wage-base update (October release each year).
- +Tax Court opinion that meaningfully shifts single-member LLC veil-piercing analysis or reasonable-comp factor weighting.
05. Limitations
- Not legal or tax advice. Generic estimates only. Specific tax outcomes depend on facts (income mix, state of residence, family circumstances, basis, prior carry-forwards) that a generic calculator cannot capture.
- State law varies materially. Single-member LLC veil-piercing case law differs by state. Operating agreement statutory requirements differ. State income tax stance differs. The site flags the major state-specific variations but is not a substitute for state-specific counsel.
- Tax classification has stickiness. IRC 1362(g) imposes a 5-year wait before re-electing S-Corp status after termination. Form 8832 instructions impose a 60-month rule on switching entity classification. Decisions made today affect tax outcomes for several years.
- Reasonable-salary defensibility is fact-specific. We reference BLS Occupational Employment and Wage Statistics for industry benchmarks but do not recommend a specific salary number for any reader.
- Case law and IRS guidance evolve. Rev Proc 2013-30 governs S-Corp late-relief today; if the IRS issues a superseding procedure we update on out-of-cycle refresh. Same for any Tax Court decision that meaningfully shifts veil-piercing analysis or reasonable-comp factors.
06. Corrections process
Email [email protected] with:
- 1.The page URL where the claim appears.
- 2.The specific claim or number that does not match the cited primary source.
- 3.The primary source we should have cited (IRS publication, IRC section, state SoS page, court opinion).
We aim to respond within 5 business days. If the correction is verified, we update the page, update LAST_VERIFIED if the change is material, and credit the correction in a site-level changelog where the contributor is willing.
This site is not a substitute for a licensed CPA or business attorney admitted in your state. For specific tax or legal advice on your situation, consult a qualified professional. Calculator outputs are estimates only.