If you’re a new-ish freelancer without a degree in accounting, trying to decode the legalese online about business entities can feel like translating an ancient manuscript. The acronyms, the liability language, the tax implications… It’s a lot. But there comes a time in every entrepreneur’s journey when they’re faced with the big question: Sole Proprietorship, Single Member LLC, or S-Corp?

We’re here to help you figure out how to structure your business for your greatest ease and benefit. So in this article, we’ll try to lay it all out in human terms, so you get a better sense of what these business entities are and how to decide which one is right for you. (Note: We highly encourage you to talk to a CPA or tax professional about how to structure your business—this is just a starter guide to help you understand each option.)

Sole Proprietorship

What It Is: A Sole Proprietorship is a one-person business that can use an assumed business name (AKA a “Doing Business As” or “DBA” name) without forming any formal business entity.

The Pros: It’s easy, plain, and simple. You don’t need to register your business with the state or file separate taxes for your business. You just file all of your work income on your personal tax return.

The Cons: You have no protection from legal action, so if someone decides to sue you, they could come after your personal assets and potentially ruin you financially. You also need to provide your personal social security number as your tax ID on documents, so your SSN will get passed around to your clients via paperwork. And, you’ll have to pay the 15.3% FICA tax (AKA “self-employment tax”) on all of your income.

Who It’s Best For: A Sole Proprietorship is good for you if you’re just starting out with a side hustle and you’re not worried about the potential legal ramifications.

Single Member LLC

What It Is: A Single Member LLC is exactly what it sounds like—a limited liability company that is owned and operated by one person. This is by far the most common way to set up a freelance business.

The Pros: There is legal separation between you and your business, so if a client decides to come after you, they can’t touch your personal assets. It’s also relatively inexpensive to set up. Costs vary state to state, but you’re typically looking at $100-$200 to set up an LLC. And when you file your taxes, it’s streamlined—everything is done through your personal tax return, so you don’t have to file a separate return for the business.

The Cons: You will pay the 15.3% self-employment tax in addition to your personal income taxes. A single member LLC is considered a “pass-through,” meaning all profits and losses pass directly from the business to you, the individual owner. So, you may end up paying more in taxes than a corporation would.

Who It’s Best For: A Single Member LLC is good for you if you’re a serious freelancer and you want the protection of legal separation between you and your business—but you don’t want the headache of filing additional IRS paperwork each year (see below).

Single Member LLC Taxed as S Corporation

What It Is: An S Corporation (or “S Corp”) isn’t actually a legal business structure—it’s a tax election that determines how your business is taxed at the federal and state level. So you could register your business as a Single Member LLC but elect to file your taxes as an S Corp (and many entrepreneurs do).

The Pros: With a Single Member LLC electing to file as an S Corp, you get all the benefits of a Single Member LLC, plus a break on taxes. You actually pay yourself a wage as the business owner, so you get to skip that aforementioned 15.3% self-employment tax that comes with the other two options. Instead, you split the 15.3% with your business, paying 7.65% in personal payroll taxes and 7.65% in business payroll taxes (which you can write off as a tax deduction).

The Cons: S Corps require separate filings for the business and for you, which can make tax season a bit more complicated. You’ll also be required to pay payroll taxes on a quarterly basis, so you can’t skip out on filing four times a year, if that’s been a habit. (Hey, it’s not the worst habit to cut.) And although you get a break on the self-employment tax, you do have to pay the FUTA tax (or unemployment tax) now, which is 6.0% of the first $7,000 you paid to each employee (you) in wages throughout the year. And, of course, you’ll still pay personal income taxes on the salary you make, as you would with any designation.

Who It’s Best For: Electing to file as an S Corp is a good move for you if your business is making profits in the six figures and you’re willing to file extra paperwork each year in order to save on taxes.

Whether you’re just starting out as a new freelancer or you’re finally taking steps to legitimize your freelance business, we applaud you. This stuff ain’t easy or simple, but it’s well worth it to learn the lingo and make the right choices based on your situation. The more comfortable you get with the legal side of your business, the more confident you’ll feel when tax season rolls around—and really throughout the whole year.