Sole Proprietorship
Sole proprietorships are the simplest business form since they are not separate tax or legal entities but rather, extensions of the individual taxpayer that owns them. A taxpayer is a sole proprietor if self-employed and the sole owner of an unincorporated business. The business has no existence apart from the owner. Its liabilities are the owner’s personal liabilities.
There is no special return to file for the sole proprietorship. The owner reports all transactions of the business on the owner’s individual federal income tax return (i.e., Schedule C, Form 1040).
Advantages
The advantages of a sole proprietorship are:
(1) All business tax advantages flow to the owner;
(2) Organizational costs should be low;
(3) Legal, accounting, and administrative fees can be lower;
(4) State and federal income taxes may be lower;
(5) Administration is less complicated; and
(6) The sole proprietorship may be easily converted to another entity.
Disadvantages
The disadvantages of a sole proprietorship are:
(1) Personal liability by the owner;
(2) Inability to income split;
(3) Limited fringe benefits permissible to owner; and
(4) Self-employment taxes assessed against owner.
Sole proprietorships are the simplest business form since they are not separate tax or legal entities but rather, extensions of the individual taxpayer that owns them. A taxpayer is a sole proprietor if self-employed and the sole owner of an unincorporated business. The business has no existence apart from the owner. Its liabilities are the owner’s personal liabilities.
There is no special return to file for the sole proprietorship. The owner reports all transactions of the business on the owner’s individual federal income tax return (i.e., Schedule C, Form 1040).
Advantages
The advantages of a sole proprietorship are:
(1) All business tax advantages flow to the owner;
(2) Organizational costs should be low;
(3) Legal, accounting, and administrative fees can be lower;
(4) State and federal income taxes may be lower;
(5) Administration is less complicated; and
(6) The sole proprietorship may be easily converted to another entity.
Disadvantages
The disadvantages of a sole proprietorship are:
(1) Personal liability by the owner;
(2) Inability to income split;
(3) Limited fringe benefits permissible to owner; and
(4) Self-employment taxes assessed against owner.