Making Less Than $50K From Consulting? Here’s Whether You Should Use an LLC or Stick With a Sole Proprietorship

💼 Making Less Than $50K From Consulting? Here’s Whether You Should Use an LLC or Stick With a Sole Proprietorship

So you’ve picked up some consulting work. Maybe it’s your side hustle. Maybe it’s your new primary gig. You’re earning under $50,000 a year and wondering:

“Do I really need to form an LLC… or can I just operate as a sole proprietor?”

It’s a great question—and the answer depends on liability, taxes, cost, estate planning, and your long-term goals.

This blog breaks down the pros and cons of both options—especially for consultants, freelancers, and part-time entrepreneurs in Texas.

🧾 What Is a Sole Proprietorship?

A sole proprietorship is the default structure when you:

• Start doing business under your own name
• Don’t create a formal legal entity

You can still:

• Invoice clients
• Deduct business expenses
• File taxes with a Schedule C on your personal return

But legally, you and your business are one and the same.

In Texas, if you’re using a business name different than your name, then you should file a DBA Doing Business As (AKA Assumed Name) with the county/state.

Don’t forget about any permit, licenses, leases, contracts, insurance that you may need.

🏢 What Is an LLC?

An LLC (Limited Liability Company) is a legal entity created by filing with the Texas Secretary of State.

You get:

• Separation between your business and personal finances
• Legal protection for your personal assets
• Optional S Corp tax election if income grows

It does cost more—but offers significant benefits in liability protection, professionalism, and long-term planning.

Don’t forget about any permit, licenses, leases, contracts, insurance that you may need.

🧠 Key Questions to Ask Yourself

1. How much risk is involved in your work?
If you’re doing strategy consulting, graphic design, or digital marketing, risk may be low.
If you’re giving financial, medical, or legal guidance, risk is higher—even at low income levels.

2. Do clients expect a more formal business structure?
Some corporate clients prefer paying LLCs or companies over individuals.

3. Is this a hobby, or do you plan to grow it?
If you see yourself scaling to $75k+ or hiring others, starting with an LLC now may save time and trouble later.

✅ Pros of a Sole Proprietorship

• No big formation costs
• No annual filings
• Simple tax reporting (Schedule C)
• Great for early experimentation or one-off income

❌ Cons of a Sole Proprietorship

• Unlimited personal liability (your house, car, or savings could be on the line if sued)
• No continuity at death (the business dies with you unless structured into an estate plan)
• Harder to build business credit
• May seem less “professional” to clients or vendors

✅ Pros of an LLC (Even Under $50K Income)

• Personal liability protection (a huge plus if you’re sued or contractually liable)
• Can open business bank accounts
• Looks more professional
• Easier to separate finances and taxes
• Can be transferred through a living trust to avoid probate
• Easier to grow or add partners in the future

❌ Cons of an LLC for Low-Income Earners

• Formation cost (~$300 filing fee in Texas)
• Annual franchise tax report (though often $0 owed under $1.23M)
• Slightly more admin and paperwork
• No automatic tax savings until you consider an S Corp (which usually makes sense at $60k+ net profit)

💡 Example: Consultant Making $35,000/Year

Let’s say you’re doing freelance marketing consulting. You make $35,000 after expenses. You:

• Don’t have employees
• Don’t rent office space
• Mostly work online

You could:

• Start as a sole proprietor while testing the waters
• Use solid insurance and contracts to reduce risk
• Move to an LLC once income grows or if a big client wants formal structure

But if you’re giving advice that could trigger lawsuits—even at low income—a low-cost LLC setup now could protect you.

🔐 Estate Planning Angle: Don’t Overlook This

Here’s what most side hustlers miss:

If your business is a sole proprietorship, and you die or become incapacitated:

• No one has authority to run the business
• Your income stream may disappear overnight
• Contracts can become uncollectible
• Your family may have to go to probate court

If your business is an LLC, you can:

• Place it inside your Living Trust
• Name a beneficiary in your operating agreement
• Ensure continuity and access to accounts

That means your family or successor can step in without court delays.

📋 Possible Scenario

If your side hustle or consulting gig:

• Brings in under $50,000/year
• Is low-risk (i.e., unlikely to trigger lawsuits)
• Is not growing rapidly

Then a sole proprietorship may be fine—as long as you have proper insurance and written contracts.  Your call. Don’t take this as advice or recommendation for your particular situation.

BUT—if you want:

• Legal protection
• Credibility
• A solid estate plan
• Room to grow…

Then an LLC may be worth the small investment—especially when bundled with a living trust.

🏁 How Mike Massey Law Can Help

We offer:

• Fast-track LLC formation (usually within 1–3 business days)
• Custom operating agreements
• Trust-based business ownership for probate protection
• Flat-fee packages with transparent pricing

You focus on your work—we’ll handle the legal details.

📆 Book Your Free Consultation
🌐 Explore Your Options at

⚠️ Disclaimer:

This blog is for informational purposes only and does not constitute legal or tax advice. Reading this blog does not create an attorney-client relationship. Please consult a licensed attorney or CPA before making decisions about your business.