Illinois Sole Proprietorship vs LLC:
Fees, Taxes, and Decision Guide (2026)
Illinois has moderate LLC formation cost ($150) but a meaningful $75 annual report fee and a 1.5% Replacement Tax that can apply to multi-member LLCs and S-Corp-elected LLCs.
Illinois LLC Fees
$150
Articles of Organization filing fee
$75 / yr
Annual report fee
4.95% flat
IL state personal income tax
1.5%
Replacement Tax (PIT pass-through LLC)
5-Year Cost Comparison for Illinois Residents
| Structure | Year 1 | Years 2-5 (each) | 5-Year Total (state-level only) |
|---|---|---|---|
| Sole Proprietorship | $0-$50 DBA | $0 | $0-$50 |
| Illinois LLC (single-member) | $225 | $75 | $525 |
State PIT 4.95% applies to net business profit under both structures. Replacement Tax (1.5%) applies to multi-member LLCs and S-Corp-elected LLCs only, not to disregarded-entity single-member LLCs or sole proprietors.
Illinois-Specific Considerations
Flat 4.95% PIT applies to both structures
Illinois personal income tax is a flat 4.95% on net business income for both sole proprietors and pass-through LLC members. No bracket advantage either way.
Personal Property Replacement Tax (PPRT)
Illinois levies a Personal Property Replacement Tax of 1.5% on LLCs taxed as partnerships (multi-member) or S-corps. Single-member LLCs that are disregarded entities for federal tax purposes are also treated as disregarded for IL Replacement Tax purposes - so a single-member LLC filed on the owner's Schedule C avoids PPRT. Multi-member LLCs and S-Corp-elected LLCs face the 1.5% on net income.
$75 annual report due first day of anniversary month
Illinois requires every LLC to file an annual report by the first day of the LLC's anniversary month (the month of formation). Filing fee is $75. Failure to file within 60 days of the due date results in administrative dissolution.
Sole prop DBA (Assumed Business Name)
Sole proprietors using a business name other than their legal name must file an Assumed Business Name Certificate with the county clerk in the county of operation. Filing fees vary by county ($5 to $50). LLCs use the registered LLC name directly without separate DBA filing.
Specific Recommendations for Illinois Residents
Stay sole prop if...
- Revenue under $30k-$40k
- The $75 annual report is meaningful relative to net profit
- No employees and clients do not require LLC status
Form an Illinois LLC if...
- Revenue above $50k (S-Corp election may save SE tax)
- Physical services or liability-heavy work
- Avoid S-Corp election initially to dodge 1.5% Replacement Tax
Sources: Illinois Secretary of State - Business Services; Illinois Department of Revenue - Personal Income Tax.
Not legal or tax advice. Consult a licensed CPA or business attorney admitted in Illinois for specific guidance.