A sole proprietorship is a business operated by one individual (or a couple). The business is considered an extension of the individual (or couple), not a separate entity. The business profits and losses are included on the individual's personal tax return, and the individual retains personal liability for the business debts and lawsuits.
If you want to use a trade name instead of your own name for the business, an assumed name certificate must be filed in the counties where you do business.
What Are The Benefits Of A Sole Proprietorship?
- Startup is quick and easy.
- All you have to do is hang out your shingle. Unless you do business under an assumed trade name, you don’t have to gain permission from a governmental entity to open your business. You may, however, need licenses or permits depending on the type of business.
- Business management is easy.
- You are the boss! Doesn’t that sound good? You don’t have to conduct meetings or follow other legal formalities.
- Handling your taxes is simple.
- You simply reflect profits or losses from your business on your personal tax return. You will use a Schedule C to your tax return to reflect the business profit or loss.
- Closing your business is simple as well.
- If you decide to stop doing business, all you need to do is close up shop and do your final tax return.
What Are The Disadvantages Of A Sole Proprietorship?
- You bear all the risk of loss.
- If the business goes under, the losses all come out of your pocket.
- Your personal assets are not safe.
- Your personal, non-exempt assets are subject to satisfaction of any business debts or liabilities.
- You may end up paying more in taxes.
- You personally pay all the tax on your profits at your personal income tax rate. If your business is wildly successful, corporate tax treatment may be better.
- You will also have to pay self-employment tax.
If you are looking to start a business and you need help deciding if a sole proprietorship is right for you, please call Adair M. Buckner at (806)220-0150 to set up a free initial consultation.