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Editorial 10 MIN READ

DBA vs LLC: the 2019 comparison

Twenty-nine months after we first ran this comparison, Section 199A has flattened the tax side and left the liability shield holding the whole argument

The Editors
Staff, Incorporator.org
10 min read Updated
Contents 7 sections
  1. What a DBA is in 2019, under actual statute
  2. What an LLC gives that the DBA does not
  3. The one column where the forms actually differ
  4. The state column: where flat federal treatment diverges
  5. Walking through the 2019 math on a real number
  6. Rule of thumb
  7. Sources

or 2019, the DBA-versus-LLC decision is almost entirely a liability question. The Tax Cuts and Jobs Act took the federal tax column off the table; a sole proprietor trading under a fictitious business name now gets the same 20% Section 199A deduction as a single-member LLC, on the same income, on the same Schedule C. What separates the two forms is whether a plaintiff can reach your savings account.

That was partly true when we ran this comparison in September 2016. It is now so uncomplicated on the federal side that the remaining arguments for forming an LLC all live in the tort column and the state column.

What a DBA is in 2019, under actual statute

A DBA is a public filing that a legal person is trading under a name other than their own. Every state has its own version. California calls it a Fictitious Business Name Statement and codifies the rules in Business & Professions Code § 17910 et seq. New York calls it a Certificate of Assumed Name under General Business Law § 130. Texas calls it an Assumed Name Certificate under Business & Commerce Code § 71.051. The mechanics rhyme across jurisdictions; the California version is a useful anchor because its requirements are among the more elaborate.

Under Cal. Bus. & Prof. Code § 17910, a person who regularly transacts business in California under a fictitious business name must file a statement within 40 days of commencing business. The statement goes to the county clerk where the principal place of business sits (§ 17915). The contents are prescribed in § 17913: the fictitious name, the street address of the principal place of business, the name and address of each registrant, the type of legal person filing, and a declaration under penalty of perjury. Section 17917 requires the registrant to publish the statement in a newspaper of general circulation, once a week for four consecutive weeks, within 45 days of filing, and then to return an affidavit of publication to the clerk. Section 17920 sets the statement to expire five years from the filing date, and sooner if the underlying facts change.

County filing fees in California run roughly $26 to $60 depending on the county, with an additional charge per extra name or registrant. The publication requirement, which exists in some form in California, New York, Illinois, Pennsylvania, Georgia, Nebraska, and Minnesota, is where the real cost lives. A legal-notice rate of $80 to $200 for a four-week run is typical, and the Los Angeles and New York City papers that qualify charge toward the top of that range. A $26 filing with a $150 publication is a realistic all-in number in a populous California county.

What the filing actually confers is narrow. It gives a bank the public record it needs to open an account in the trade name. It lets the registrant accept checks and sign invoices under the brand. It establishes, in a county register, that this natural person is the one behind the name. It does not create an entity. It does not create a trademark. It does not protect the registrant from being sued personally for anything the business does. The DBA is a label applied to a legal person; the legal person is still the one who pays the judgment.

What an LLC gives that the DBA does not

An LLC, formed by filing articles of organization with the Secretary of State, is a distinct legal person. State filing fees in 2019 range from $40 in Kentucky to $500 in Massachusetts, with most states in the $75 to $200 band. The LLC can hold leases, own inventory, sign contracts, hire employees, sue, be sued, and go insolvent, all without those events automatically reaching the member's personal balance sheet.

The federal tax treatment, as of 2019, is deliberately neutral between the DBA-wearing sole prop and the single-member LLC. Treasury Regulation § 301.7701-3(b)(1)(ii) treats a domestic single-member LLC as a disregarded entity by default. That means the IRS looks through the LLC and taxes the member as if the LLC did not exist. Income and expenses land on Schedule C. Self-employment tax applies under IRC § 1401. The 2019 Social Security wage base is $132,900, per the Social Security Administration's October 2018 announcement; above that, only the 2.9% Medicare portion plus the 0.9% Additional Medicare Tax on high earners (IRC § 1401(b)(2)) continues to apply.

Crucially for this comparison (and we will use the word once because it actually is): IRC § 199A applies identically to both forms. The proposed regulations at Prop. Treas. Reg. § 1.199A-1(a)(2), published at 83 Fed. Reg. 40884 (Aug. 16, 2018), define a qualified trade or business as one conducted "by the individual directly as well as through a disregarded entity." Treasury finalized those regulations on February 8, 2019 (T.D. 9847), a few weeks before this article, without changing the disregarded-entity rule. A Schedule C filer trading as "Bluebird Consulting" under a California FBN gets the same 20% deduction as a Schedule C filer who reorganized as Bluebird Consulting LLC the day before.

This is a meaningful shift from the pre-TCJA world, where the form choice could interact with reasonable-compensation rules, S-corp elections, and state-level treatment in ways that sometimes favored the entity. For 2019, the federal side is flat. Below the taxable- income thresholds (Rev. Proc. 2018-57, § 3.27: $160,700 single, $321,400 married filing jointly), the deduction is a straight 20% of qualified business income, subject to the overall taxable-income- minus-net-capital-gain ceiling. Above the thresholds, W-2 wage and UBIA-of-qualified-property limitations (IRC § 199A(b)(2)) kick in, and the specified-service-trade-or-business phase-out begins; the phase-out completes at $210,700 single and $421,400 joint. None of those mechanics read the entity form. They read the owner's taxable income and the business's activity.

So for a freelance designer clearing $90,000 of net profit in 2019, the federal return is the same whether the business name sits on a fictitious-name register or on articles of organization. The 199A deduction is $18,000 either way (20% of $90,000, subject to the taxable-income limit). The self-employment tax on net earnings is the same. The income-tax rate schedule is the same. The Schedule C is the same document.

The one column where the forms actually differ

The liability shield is what you buy for the LLC filing fee and the annual maintenance. A sole proprietor with a DBA signs contracts in their own name, even if the letterhead reads "Bluebird Consulting." Vendor judgments run to the person. Tort claims arising out of business activity run through the person's assets. Employment claims, which do not respect casual arrangements, run to the person. Commercial landlords sue the person. The DBA is an alias for the defendant; it is not a different defendant.

An LLC, properly formed and operated, is the contracting party and the defendant of first instance. A creditor with a claim against the LLC must get a judgment against the LLC and then try to collect from LLC assets. Reaching the member requires either a personal guarantee (common for leases, lines of credit, and sometimes trade credit) or a successful veil-piercing argument. The veil-piercing standard varies by state but converges on two things: a unity of interest and ownership such that the separate personalities no longer exist, and an inequitable result if the court respects the separation. The language, originally articulated under corporate law in cases like Walkovszky v. Carlton, 18 N.Y.2d 414 (N.Y. 1966), has been imported into LLC jurisprudence in most states with minor modifications.

In practice, the single-member LLCs that get pierced are the ones where the member treated the account as a personal checkbook, paid household expenses from the entity, and signed contracts in their own name. The shield is real, but conditional on the owner treating the entity as real. A freelance designer who forms an LLC, keeps a separate bank account, runs the business through that account, and signs contracts in the LLC's name has a shield. The same designer who deposits client checks into personal checking, pays the rent from the LLC account because it is easier, and signs the gym's service agreement in their personal name has paid the state for paperwork and very little else.

The state column: where flat federal treatment diverges

The federal symmetry created by § 199A does not extend to every state. California's R&TC § 17941 charges an $800 minimum annual franchise tax on every LLC doing business in California, regardless of income, plus a Form 568 return and a gross-receipts fee that tiers upward starting around $250,000 in California-source revenue. A sole proprietor trading under an FBN in Oakland does not pay the $800. A single-member LLC running the same business does. For a side-project consultant clearing $40,000, the $800 is 2% of net, pure overhead.

Tennessee imposes an entity-level franchise and excise tax on SMLLCs that does not reach a sole prop (Tenn. Code Ann. § 67-4-2004). New Hampshire's Business Profits Tax and Business Enterprise Tax hit LLCs above modest thresholds in ways that do not reach a Schedule C filer until the same thresholds are crossed in the person's individual return. Massachusetts's annual report fee is $500. Delaware's annual tax is $300 flat, due June 1. New York's biennial statement is comparatively mild ($9), but the publication requirement at LLC formation under N.Y. LLCL § 206 can run $1,000 or more in New York County.

None of these state layers attach to a DBA. The FBN is a county filing; in California it is a one-time $26 to $60 expense with a four-week newspaper run, renewed every five years. The LLC is a Secretary-of-State filing with an annual recurring tax, registered- agent fee, and (depending on the state) a separate entity return. The cost delta over five years, in California, is roughly $176 for the DBA (one filing plus publication plus a renewal) against roughly $4,400 for the LLC ($800 annually times five, plus a $70 formation fee, plus registered-agent subscription). The delta is bigger than it looks.

Walking through the 2019 math on a real number

A solo graphic designer in Alameda County clears $85,000 of net business income in 2019, filing single with no other income. Under a DBA, she files a Schedule C, takes the $85,000 through to her individual return, calculates self-employment tax of roughly $12,007 (15.3% of 92.35% of net earnings, per IRC § 1401 and § 1402(a)), deducts half of SE tax above the line, and ends up with taxable income after the standard deduction in the neighborhood of $66,800. Her 199A deduction is 20% of her QBI, capped at 20% of (taxable income minus net capital gain); the lesser is $13,360. Her federal income tax on the remaining $53,440 falls in the 22% bracket with some 12% and 10% underneath, producing a tax of roughly $7,000 before credits. State tax in California on $80,000 or so of adjusted gross income runs another $3,800 to $4,200.

Now form the LLC. Every number on her federal return is the same: Schedule C, same QBI, same 199A deduction, same SE tax, same federal liability. Her California return now adds the $800 minimum franchise tax under R&TC § 17941 and a Form 568, raising her total California bill by $800. Her formation fee with the California Secretary of State was $70 (historical pre-2022 waiver not yet in effect); her registered agent, if she hires one, is another $100 or so. First-year cost of the form change: about $970, with $800 recurring.

For that $800 a year, she gets a liability shield in the event that a client trips on a cable at her studio, a subcontractor she hired damages a rented venue, or a vendor sues for a disputed invoice. If she has no studio, no subcontractors, no inventory, no employees, and her worst plausible downside is losing the client and the unpaid invoice, she is buying a shield against an unlikely loss. If any of those conditions flip (she leases a studio, hires a production assistant, holds inventory for resale, takes on a $50,000 project with a potentially litigious counterparty), the $800 becomes cheap insurance.

Rule of thumb

In 2019, the tax column does not decide this anymore. Form the DBA if the worst plausible thing that could happen to your business is losing the unpaid invoice; form the LLC the moment the worst plausible thing is a claim that can reach your savings.

Sources

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