The overriding concern should be your exposure to legal liabilities. As a Sole Proprietory, all your personal assets, including your home, are fully exposed to an illimited amount in case of a lawsuit.
If you operate under the umbrella of a legal entity, your personal assets are protected. Your liability exposure is limited to the assets you are holding in the name of the company.
Just registering a legal entity is not enough to keep that protection. Unless you are keeping your personal finances (bank account/credit cards/out of pocket) strictly separate from the finances and assets of your company, or if you sign commitments in your personal name without indicating that you are signing in your capacity as an officer of the company, you could lose that protection in a court case.
From a tax point of view, your main concern is the payroll tax. If you report as a Sole Proprietor (Schedule C) a payroll tax of 15.3% is payable on the net income of your operation. This is not really a tax but the employee's and the employer's combined contributions to Social Security. The Social Security part of 12.4 % is capped at $ 132.9K in 2019. There is no limit on the Medicare portion of 2.9%.
Half of the payroll tax becomes a taxable deduction on your Form 1040.
If you operate under a legal entity as the only member, you have to become an employee of the company and draw a salary as a W2 income. The level of that salary depends on what your best estimated reasonable level of compensation is for your personal efforts you are putting into to generate the taxable income. You can google that issue under "what is a reasonable salary - IRS" Depending on how much that reasonable salary is, your Social Security deductions might be less than your payroll tax.
W 2 wages are tax-deductible in the company. The net profit will be taxable in your Form 1040 as a business income based on the K-1 information submitted to you by the company. (50% of the payroll tax is also tax-deductible on your Form 1040)
The legal and tax status of a legal entity are two different things. You can register legally as a single member LLC and apply for the tax status of an LLC from the IRS or file as a sole proprietor on Schedule C. This way you have the liability protection under the LLC and can file as a Sole Proprietor. The latter keeping administrative work and some costs lower.
