Are you a one person business that is considering becoming a sole proprietorship? There are many advantages to doing so, and many consider it to be the easiest business structure to form because it’s just you, and it begins when you make your first sale.
Many people do not think that they are considered a business unless they form a Limited Liability Company (LLC), but that’s not true. According to the IRS, a sole proprietorship is just as much a business as anything else.
Here is a quick overview of a Sole Proprietorship:
- Easiest business structure to form;
- Income taxes are filed with a Schedule C attached to your personal tax return;
- Owner is personally liable for any financial obligations of the business.
As a sole proprietorship, you report your annual income and expenses on a Schedule C that’s filed with your personal tax return. If your state has an income tax, then the info you reported on your federal return will just flow right onto your state return. On the federal level, you don’t need to do anything to create a sole proprietorship, but your state or city may require permits or licenses enabling you to operate.
The big downside to the sole proprietorship structure is that the owner is personally liable for any financial obligations the business may have.
For more details on sole proprietorships and other business structures, please click here.
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