Will forming an LLC reduce my taxable income?
Short answer: on its own, no. An LLC is a legal structure, not a tax structure — and that distinction trips up a lot of new business owners.
What an LLC actually does
Forming an LLC separates your personal assets from your business liabilities. If the business gets sued or can't pay a debt, your personal assets are generally protected. That's a real and valuable benefit — but it's a liability benefit, not a tax benefit.
How the IRS sees your LLC
By default, the IRS taxes a single-member LLC as a "disregarded entity" (basically, as if it didn't exist — income and expenses flow to your personal return, taxed the same as a sole proprietorship). A multi-member LLC is taxed by default as a partnership. In neither case does simply forming the LLC change how much tax you owe.
Where the tax savings actually come from
The tax savings people associate with LLCs usually come from a separate step: electing to have the LLC taxed as an S Corporation. That election can reduce self-employment tax by letting you split income between W-2 wages (subject to payroll tax) and distributions (not subject to self-employment tax) — but it only makes sense once your profit is high enough to justify the added payroll and compliance costs.
The bottom line
Form an LLC for liability protection. Consider an S Corp election for potential tax savings once your profit supports it. They're two different decisions, and conflating them is the most common LLC myth we hear.