You Don’t Need an LLC to Start a Business (or Deduct Taxes)

You don’t need a fancy logo, a big launch… or an LLC to be “official.”

If you’ve been scrolling business TikTok, you’ve probably heard something like:

“Step 1: Form your LLC so you can write off everything.”

Here’s the reality:

• You can start earning money without an LLC.

• You can deduct legitimate business expenses without an LLC.

• And in many cases, you’re already considered a business owner as soon as you’re regularly doing work with the intent to make a profit.

The paperwork comes second. The business activity comes first.

Let’s break that down in simple, practical terms.

Myth: “No LLC = Not a Real Business”

An LLC is a business structure, not a magic “on switch” for your business.

Whether you’re “legit” has much more to do with what you’re actually doing:

• Are you offering a product or service?

• Are you charging for it?

• Are you doing it with the goal of making money, not just for fun once a year?

If you’re tutoring, freelancing, baking for local events, designing websites, mowing lawns, doing hair, or consulting — and you’re doing it consistently to earn income — you likely already have a business in the eyes of the tax system.

No LLC paperwork required.

What You Are Without an LLC: a Sole Proprietor

If you start a business by yourself and don’t formally create a separate entity (like an LLC or corporation), you’re automatically a sole proprietor.

That means:

• You and the business are legally the same person.

• There’s no separate federal tax return for the business.

• You usually report your business income and expenses on a form called Schedule C, which is filed along with your personal tax return.

Example:

• Jane Smith starts “Smith Virtual Assisting.”

• She never files LLC paperwork with the state.

Jane is still running a business. She’s just Jane Smith, sole proprietor, and she reports her income and expenses with her personal taxes.

Your city or state might still require:

• A business license

• A “doing business as” (DBA) name if you’re using a brand name

• Sales tax registration if you’re selling taxable goods or services

Those are about local rules and compliance — not about whether you’re “real enough” to deduct expenses.

Can You Deduct Business Expenses Without an LLC?

Short answer: Yes.

You don’t unlock write-offs with an LLC. You unlock them by:

1. Actually running a business, and

2. Paying for things that are ordinary and necessary for that business.

In plain language, that means:

• Ordinary: common and accepted in your line of work

• Necessary: helpful and appropriate for your activity

How this usually shows up on your taxes

As a sole proprietor, you’ll typically:

• List your income and expenses on Schedule C.

• If your net self-employment income is above a certain amount, you’ll also calculate self-employment tax (your Social Security and Medicare contributions).

If you later form a single-member LLC and don’t choose any special tax treatment, you’ll often still use Schedule C. So the form you use and the deductions you can take may look the same before and after the LLC.

Common deductions you can take without an LLC

As long as they’re legitimate business expenses and you keep reasonable records, you may be able to deduct things like:

• Software & tools

  • Design apps, CRM tools, scheduling apps, bookkeeping software, Zoom, Canva, etc.

• Supplies & materials

  • Craft supplies, packaging, cleaning products, small tools, printer ink, ingredients for a baking business

• Advertising & marketing

  • Website hosting, domain fees, social media ads, business cards, flyers

• Professional services

  • Tax preparation, bookkeeping, legal advice related to your business

• Home office expenses (if you qualify)

  • A portion of rent or mortgage interest, utilities, and internet for space you use regularly and exclusively for your business

• Vehicle & mileage

  • Miles driven for client meetings, deliveries, or other business errands (not your daily commute to a separate job)

The key is not whether you have “LLC” in your name. The key is whether:

• The expense is truly for business,

• You can explain why it’s related to your work, and

• You have some way to back it up (receipts, statements, logs).

But What About Hobbies? (You Can’t Just Deduct Everything)

Here’s where people get tripped up: not everything that makes money is a business.

There’s a difference between a business and a hobby:

• A business is run with a real intent to make a profit.

• A hobby is something you mainly do for personal enjoyment, even if you occasionally earn something from it.

Why this matters:

• Business income is reported as business income, and related expenses can generally be deducted.

• Hobby income may still need to be reported, but the rules around deducting expenses are much more limited.

Simply forming an LLC does not turn a hobby into a business if your behavior doesn’t match.

Signs you’re operating a business (even without an LLC):

• You keep records of your income and expenses.

• You set prices intentionally (not random or always at a loss).

• You promote or market what you offer.

• You show up consistently, not just when you feel like it.

• You actually care whether it makes a profit and adjust when it doesn’t.

If that sounds like you, you’re probably much closer to the business side of the line.

So… If I Don’t Need an LLC, Why Do People Get One?

LLCs are not useless — they’re just often not step one.

What an LLC actually does

An LLC (Limited Liability Company) is a legal structure created at the state level. Its main purpose is to provide limited liability protection, which can help separate your personal assets (like your car or savings) from certain business debts and claims.

Important points:

• By default, a single-member LLC is often taxed just like a sole proprietorship.

• The benefits of an LLC are more about legal protection, contracts, and credibility than about suddenly getting “better” tax deductions.

Reasons to consider an LLC later

An LLC can make sense when:

• Your income is consistent and you know you’re committed to this business.

• You’re signing contracts, working with bigger clients, or taking on more risk.

• You want a clear line between your personal and business world.

• You’re adding a partner or plan to bring one in.

The important thing: you can start as a sole proprietor, learn the ropes, and upgrade to an LLC when your situation calls for it.

Real-World Example: Freelancer Starting Without an LLC

Meet Alex, a freelance graphic designer.

• Alex starts taking on 3–4 clients a month after work.

• Clients pay via PayPal and direct deposit.

• Alex has no LLC — it’s just “Alex Rivera, Designer.”

For tax purposes:

• Alex is a sole proprietor.

• Alex reports all client income and business expenses on Schedule C.

• If Alex earns enough from freelancing, they also calculate and pay self-employment tax.

Alex may be able to deduct:

• Design software subscriptions

• A portion of their home that is used regularly and exclusively for work (if it meets the criteria)

• Online courses related to design or marketing their services

• Mileage for driving to client meetings

• The business portion of their phone and internet

Two years later, things are going well:

• More clients

• Larger projects

• Contracts involved

Now Alex wants a clearer division between personal assets and business activity. That’s a great time to talk with a professional and consider forming an LLC.

The important detail: Alex was already in business and already deducting expenses before the LLC ever showed up.

How to Start a Business Today Without an LLC

Ready to move from “thinking about it” to actually doing it? Here’s a simple checklist.

This is general education, not personalized legal or tax advice. Your specific situation and state rules may be different, so when in doubt, talk with a local tax pro or attorney.

1. Decide what you offer and who you serve

Get specific:

• What exactly are you selling — a service, a product, or both?

• Who is your ideal customer or client?

• How will you get paid — invoices, payment apps, credit cards, online platforms?

Clarity makes it easier to make good decisions about pricing, expenses, and taxes.

2. Check local requirements

Even without an LLC, your city or state may require things like:

• A business license

• A DBA if you operate under a name other than your legal name

• Sales tax registration if you sell taxable goods or services

Spend a little time on your state’s business website or with a local advisor. It’s usually easier than it looks once you know where to go.

3. Separate your money (even if it’s a small amount)

You don’t need an LLC to treat your business like a business.

At minimum:

• Use a separate bank account just for business income and expenses (even if it’s technically a personal account labeled “business”).

• Run all business income into that account and pay business expenses from it.

This makes your bookkeeping and tax prep far easier and gives you a clearer picture of how your business is actually doing.

4. Consider getting an EIN

An EIN (Employer Identification Number) is a unique tax ID for your business.

As a sole proprietor, you can choose to:

• Use your Social Security number, or

• Apply for a free EIN.

An EIN can be helpful if you:

• Don’t want to share your Social Security number with clients, or

• Want to open certain types of business bank accounts, or

• Plan to hire employees later.

5. Track every dollar in and out

Good records protect you and empower you.

Create a simple system:

• A spreadsheet, a bookkeeping app, or a notebook that you update consistently

• Track:

  • Income: who paid you, how much, when

  • Expenses: date, amount, what it was, and why it’s business-related

• Save receipts, invoices, and statements (photos or PDFs are fine)

If someone ever asks, “How did you get this number?” you’ll have a clear answer.

6. Learn the basics of estimated taxes

Because no employer is withholding taxes for you, you’re responsible for:

• Income tax on your profits, and

• Self-employment tax on your self-employment income.

Once your business is bringing in real money, it’s worth learning:

• Roughly how much of each payment you should set aside for taxes

• Whether you should be making quarterly estimated payments

• Which forms you’ll need when it’s time to file

A tax professional, online tools, or reputable guides for self-employed people can help you get this set up correctly.

Quick FAQ

“If I don’t have an LLC, can I still get the 20% pass-through deduction?”

Many small business owners who operate as sole proprietors may qualify for a deduction on a portion of their business income, depending on their overall income level and the type of business they run.

The rules can be detailed, so it’s a great topic to review with someone who understands your full tax picture. The key point: you don’t need an LLC just to be considered for it.

“Does an LLC automatically save me money on taxes?”

Not automatically.

• A single-member LLC is often taxed the same way as a sole proprietor by default.

• Some advanced setups (like electing to be taxed as an S corporation) can change how taxes work, but those strategies tend to make sense only once your income reaches certain levels and you’re ready for more complexity.

Think of an LLC mainly as a legal and risk management tool, not as a guaranteed tax shortcut.

“So, should I ever get an LLC?”

Probably — just not always on day one.

An LLC might make sense when:

• Your business income is consistent and meaningful.

• You’re signing contracts or taking on more risk.

• You want clear separation between your personal world and your business world.

• You’re bringing on partners or investors.

The main lesson is:

• You don’t have to wait for an LLC to start.

• You don’t need an LLC to deduct legitimate business expenses.

• You can upgrade your structure later when it matches your goals and risk level.

Final Thought from The Financial Smith

Think of your business like starting a small garden.

You don’t begin by buying acres of land, installing a full irrigation system, and building a greenhouse. You start with a few pots on the patio — some soil, seeds, sunlight, and a bit of consistency.

• Your skills and effort are the seeds.

• Your systems and recordkeeping are the soil and water that help everything grow.

• Your business structure (like an LLC) is more like the raised beds or fencing you add after things are growing and you know what you want to protect.

You don’t need a big, formal setup to plant the first seeds.
You just need to start, pay attention, and adjust as things grow.

Start as a sole proprietor.
Keep clean records.
Claim the deductions you’re allowed.

And when your business is ready for more structure and protection, you can always shape it into the next form — one deliberate step at a time.