Do I need an LLC?Do I need an LLC before my first sales?
Short answer. Usually not to start. If you sell an app, a SaaS or a digital product without forming anything, you are a sole proprietor by default. An LLC does not lower your federal income tax by itself: a one-member LLC is taxed like a sole proprietorship unless you elect otherwise. What it changes is liability: who is on the hook if a customer, a vendor or a state comes after the business. "Not yet" is a real answer, and the free calculator will give you one for your own numbers.
Informational only. Not legal or tax advice. Confirmed means read on an official IRS or SBA page on 2026-11-03. This page does not tell you what to do in your situation. Ask a CPA or an attorney in your state.
What you are before you form anything
The SBA says that if you do business without registering as another type, you are "automatically considered to be a sole proprietorship," and that for a sole proprietor "your business assets and liabilities are not separate from your personal assets and liabilities" (SBA: Choose a business structure, checked 2026-11-03). verified In plain words: you can start selling, and the money and the risk are yours personally.
What an LLC changes, and what it does not
- Liability: yes. The SBA says "LLCs protect you from personal liability in most instances." verified The protection has limits, and it depends on the state and on how you run the company (keeping business and personal money separate matters). How far it goes in your state is not verified here; ask an attorney.
- Federal income tax: no, not by default. The IRS says "an LLC with only one member is treated as an entity disregarded as separate from its owner," and that an individual owner "is subject to the tax on net earnings from self employment in the same manner as a sole proprietorship." The LLC is treated as a corporation only if it files Form 8832 and "affirmatively elects to be treated as a corporation" (IRS: Single member limited liability companies, checked 2026-11-03). verified Whether an S-corp election ever saves you money depends on profit; see the LLC vs S-corp calculator.
- State fees: yes, and they are the real cost. Forming costs money and many states charge every year, even if you earn nothing. California's annual tax is $800 whatever you make. See LLC cost by state before you decide.
What to do in the first few sales instead
- Keep the money separate from day one. A separate bank account for the business costs nothing and makes the later switch (and your tax return) far easier.
- Write down what you earn and spend. Sole proprietors report on Schedule C and pay self-employment tax on net earnings. See the 1099-K guide for the form payment processors send.
- Check your state and city for a business registration or license. Rules for online software sellers differ by place and are not verified on this page. Your state's own business site is the source.
- Run the calculator once you have real numbers. It weighs revenue, customers' data, contractors and what you can afford, and tells you "Not yet", "Soon" or "Now".
Signs it is time to switch
People usually form once something real is at stake: customers are paying you regularly, you hold other people's personal data, you hire contractors, you sign contracts or raise money. The calculator turns those into a verdict, and its thresholds are placeholders until a CPA and an attorney review them. If the verdict is "Soon", the deadline reminders and the state guides help you plan.
Open the free calculator. Costs for your state: NY, CA, TX, FL, WA, IL, GA, NC.
Sources
- IRS: Single member limited liability companies, checked 2026-11-03.
- SBA: Choose a business structure, checked 2026-11-03.
Informational only. Not legal or tax advice.