Business Formation Guide for Providers

Sole proprietorship or LLC?

• Sole proprietorship. The default when you work for yourself: there's nothing to form. You and the business are the same, so business debts and claims can reach your personal assets. You register a trade name only if you work under a name other than your own.
• Single-member LLC. A separate legal entity you register with your state, for a filing fee and usually a yearly report. It generally keeps business debts and claims separate from your personal assets. That protection has limits, so insurance still matters.
• Either way. Hold every license your Services need (see the State Compliance Guide), register for state taxes, and keep a separate bank account. On your Hairola payout account, choose "An individual" as a sole proprietor, or "A business" with the LLC's exact legal name and EIN.

Federal basics

Employer Identification Number (EIN)

An Employer Identification Number (EIN) is free from the IRS, and the IRS warns to beware of websites that charge for one. The online application issues the number immediately and is available Monday to Friday 6 a.m. to 1 a.m. the next day, Saturday 6 a.m. to 9 p.m., and Sunday 6 p.m. to midnight Eastern time; it must be finished in one session. A sole proprietor with no employees and no excise, employment, or Keogh plan filings is not required to have an EIN and can use a Social Security number. A single-member LLC needs an EIN if it has employees or must file certain excise tax forms, and an LLC that otherwise does not need one can still get one, for example to open a bank account.

How you're taxed

By default the IRS treats a single-member LLC as a disregarded entity, so its income is reported on the owner's Schedule C just like a sole proprietorship, and the owner pays self-employment tax. An LLC can instead elect to be taxed as a corporation (Form 8832) or as an S corporation (Form 2553); Form 2553 is filed no more than 2 months and 15 days after the start of the tax year the election is to take effect, or any time in the year before. Self-employment tax is 15.3 percent (12.4 percent Social Security plus 2.9 percent Medicare), figured on Schedule SE when net earnings are $400 or more. For 2026 the Social Security part applies to the first $184,500 of combined wages and self-employment earnings, and an extra 0.9 percent Medicare tax applies above $200,000 for single filers.

Quarterly estimated taxes

Income without withholding, such as self-employment earnings, is paid through quarterly estimated tax using Form 1040-ES. In most cases estimated tax is required for 2026 when the expected tax owed is at least $1,000 after withholding and refundable credits. The 2026 due dates are April 15, 2026, June 15, 2026, September 15, 2026, and January 15, 2027; the January payment is not needed if the 2026 return is filed by February 1, 2027 with the full balance paid. Late or short payments can bring an underpayment penalty.

Form 1099-K

The One Big Beautiful Bill Act of 2025 retroactively reinstated the reporting threshold that applied before the American Rescue Plan Act of 2021, so the lower $600 threshold never takes effect. For tax year 2026, a third party settlement organization such as a payment app or online marketplace must file Form 1099-K only when a payee's gross payments for the year exceed $20,000 and the number of transactions exceeds 200. A platform may still send a 1099-K below that threshold, some states set lower thresholds, and payments taken directly by credit or debit card have no minimum. All business income is taxable whether or not a 1099-K is received.

Beneficial ownership reporting

Companies formed in the United States, including single-member LLCs, do not have to file beneficial ownership information (BOI) reports with FinCEN. FinCEN's March 2025 interim final rule removed the requirement for U.S.-created entities, and a final rule issued August 11, 2026 and effective August 14, 2026 made that exemption permanent. Only companies formed under foreign law and registered to do business in a U.S. state or tribal jurisdiction still report, and FinCEN says it will delete BOI previously reported by U.S. persons.

What an LLC protects

A sole proprietorship is not a separate legal entity, so the owner can be held personally liable for the business's debts and obligations. An LLC protects the owner from personal liability in most instances, keeping personal assets like a house, car, and savings out of reach if the LLC faces bankruptcy or lawsuits. The SBA notes that this protection has limits. It describes professional liability insurance as covering losses from malpractice, errors, and negligence, and general liability insurance as covering bodily injury and property damage claims.

SBA - Choose a business structure SBA - Register your business SBA - Get business insurance IRS - Small business and self-employed tax center IRS - Single member limited liability companies IRS - Apply for an EIN online IRS - Self-employment tax IRS - Form 1040-ES, Estimated Tax for Individuals IRS - Understanding your Form 1099-K FinCEN - Beneficial ownership information reporting

State by state

Choose your state to see its offices, fees and filings. Links go to the official sources we used.