Sole Proprietorship

Sole Proprietorship Small Business

Tips for Small Business Owners

sole proprietorship

sole proprietorship

Sole Proprietorship

Sole Proprietorship Is Easy To Set Up

A Sole Proprietorship is relatively easy to set up and run; however, as previously mentioned, a Sole Proprietorship provides no personal liability protection. This may seem a minor detail when first opening a business, especially if you have no real assets. However, do not underestimate the many advantages of operating as a Corporation or LLC. Also, in the case of establishing business credit, it can be difficult to go back and undo some prior mistakes.

Tax consequences of operation as a sole proprietor are as follows:

Profit and loss from the business will flow directly to Schedule C of your personal 1040. On one hand, this can be a good thing. There is no “double taxation” as in the case of a C Corporation, however, the disadvantages can far outweigh this advantage.
See Subchapter S filing for C Corporations for elimination of the “double taxation” issue.

One major issue to be aware of when operating as a sole proprietorship in the current economic environment is as follows:

As of January 2010 the word is out that as a result of internal audits by the IRS, an annual revenue collection shortfall of $300 billion dollars per year has been found. The IRS believes that the shortfall is not coming from the large corporations, but from the small businesses. The IRS is primarily targeting the sole proprietor — approximately 67% of all small businesses — who file taxes on a 1040 Schedule C return.

See IRS Study on Tax Gap

Is Your Small Business a Sole Proprietorship?

If your business is operating as a Sole Proprietorship you would be wise to consider converting to one of the forms of corporate entity.

By IRS statistics, if you operate your business as a sole proprietorship, you are 300% more likely to be audited by the IRS, compared to a corporation or LLC.

See IRS Audit Tips

CONTINUED TO: Sole Proprietorship Tax Strategies

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Sole Proprietorship Small Business