I'm starting a small electrical business. How should I form, Sub S, LLC, or Sole Proprietorship? Which one is best for me?

I would give serious consideration to setting up an LLC. Consulting directly with an experienced attorney will help you understand the best way forward under Illinois law. Regardless of what you set up, good insurance coverage is your first line of defense. Second is your business entity. I would highly recommend that you stay away from operating as a sole proprietor, as your liability insurance could be exceeded by a claim and you would be personally exposed. The benefit of using an LLC versus a S-Corp is that it is much easier to operate, with less formalities, and you can elect S-Corp taxation if you desire it. If you do choose to set up an LLC, you may want to avoid being the sole member, as there are now a few cases around the US where a single-member LLC has been pierced because the court found no one else would be harmed by doing so. If you're operating correctly as an LLC, you should be protected from personal liability or at least it should be much more difficult for the claimant to establish personal liability, providing greater incentive for a more favorable settlement, etc.

By all means consult a lawyer or an accountant. That said, an LLC has several advantages over an S corp, one is that this is Schedule C income and you do not have to file a separate tax return. The act to incorporate is amazingly simple and you are in essence a sole prop but have the extra protection of the LLC from liability.

You can organize an LLC in any state. Using an LLC is a very viable way to create a tax friendly entitity that has protections for the LLC members from personal liability for the business debts. Here are some other considerations. Most small freelance businesses start out with a business name. Before you “put your freelance name in stone” by putting it on business cards, on your website, and in a logo, make sure it will be a useable name for many years.Here are three other topics for you to consider before you go "freelance". 1. Choose an Address Unless you are working out of your home, you’ll need a location for your business. It might be an office or a retail space. If you are working out of your home, consider getting a post office box near you so your home address is not the same as your company. 2. Get a Tax ID One of the first steps in business start-up, after you have a name and a business address and you know your legal form, is to fill out a tax identification application (also known as an employer ID). This number is unique to your business and is an identifier on all types of documents and registration applications. Many if not all banks want you to have this number before you can set up a checking account for your freelance work and/or apply for a loan. If the LLC or corporation will have employees or needs an Employer Identification Number for some other purpose, you may obtain an EIN. See http://www.limitedliabilitycompanycenter.com/si... 3. Create a Business and Marketing Plan Before you start selling your freelance services, you’ll need to put together a plan. Your plan should detail exactly what you are, who you are selling to, defines your competition, and defines exactly how you will advertise and promote your company during your first year of business and beyond. Having thought through your business and marketing plan will help a potential customer see that you are serious about selling freelance and it will give you a plan of action to work from as you get started.

S corps and LLCs are similar in that they are both “pass-through” entities for tax purposes; the income of these companies are passed through to their owners and reported on the owners’ personal income tax returns, thereby eliminating the double taxation incurred by owners of a standard corporation, or C corporation. (With a C corporation, the net business income is subject to corporate income tax, and the monies remaining after the corporate income tax are taxed a second time when they are distributed as dividends to its owners who must then pay personal income tax.) So what is the difference between an S corporation and an LLC? And which structure is right for you? An S corporation is operated in the same way as a traditional C corp. An S corp. must follow the same formalities and record keeping procedures. The directors or officers of an S corp. manage the company. And an S corp has no flexibility in how profits are split up amongst its owners. The profits must be distributed according to the ratio of stock ownership, even if the owners may otherwise feel it is more equitable to distribute the profits differently. LLCs offer greater flexibility in ownership and ease of operation. There are no restrictions on the ownership of an LLC. An LLC is simpler to operate because it is not subject to the formalities by which S corps must abide. An LLC can be member-managed, meaning that the owners run the company; or it can be manager-managed, with responsibility delegated to managers who may or may not be owners in the LLC. And the owners of an LLC can distribute profits in the manner they see fit. A major factor that differentiates an S corporation from an LLC is the employment tax that is paid on earnings. The owner of an LLC is considered to be self-employed and, as such, must pay a “self-employment tax” of 15.3% which goes toward social security and Medicare. The entire net income of the business is subject to self-employment tax. In an S corporation, only the salary paid to the employee-owner is subject to employment tax. The remaining income that is paid as a distribution is not subject to employment tax under IRS rules. Therefore, there is the potential to realize substantial employment tax savings. Standard advice – Form as an LLC which has the option to elect to be treated as an S-corp. for tax purposes. After one year of doing business, consult CPA to determine if S-corp tax filing will save taxes. Disclaimer: Please note that this answer does not constitute legal advice, and should not be relied on, since each situation is fact specific, and it is impossible to evaluate a legal problem without a comprehensive consultation and review of all the facts and documents at issue. This answer does not create an attorney-client relationship.