(702) 587-5652 vickig@silentgconsulting.com

Many people in business as an individual are sole proprietors and they have gained this legal status without even knowing it. If you operate a business by yourself and do not go through the process to incorporate or establish an limited liability company (LLC), you are accordingly a sole proprietor. Contrary to a S corporation, LLC, general partnership, or LLP, a sole proprietorship is not considered to be a separate legal entity. The owner of the business directly owns all the assets of the business and is in solitary charge of its running.

Selecting a Business Structure: Sole Proprietorship vs S Corp

One of the major factors that makes sole proprietorships, such a popular business structure is that uncomplicated and inexpensive method to establish and operate a singe-owner business. You do not have to follow any specific procedures or file paperwork to establish a sole proprietorship, other than the usual license, permit, and other regulatory necessity your state and locality obtrudes on your on any business.

Liability and Tax Issues with a Sole Proprietorship

Sole proprietorships do have a significant disadvantage, which is that they do not provide limited liability protection. Corporations, LLCs, and LLPs offer limited liability, which is the most significant factor why many business owners utilize these business structures. However, when you operate a sole proprietorship business, the limited liability you’ll obtain by forming a corporation or limited liability company will not necessarily have you fully covered. You are still be liable for any damages created by negligence, so you should still consider having liability insurance.

As a sole proprietor, you and your business congruent for tax reasons. Sole proprietorships don’t pay taxes or file tax returns. Alternative, you need to report the income you make or lose on your individual tax return (IRS Form 1040). As a sole proprietor you are not an employee of your business entity. Instead, you are a business owner also commonly referred to as self-employed. You are not required pay payroll taxes on your income or withhold income tax from your salary. You are not required to file employment tax returns or pay state or federal unemployment taxes. You are also not required to possess workers’ compensation insurance. These factors can potentially save hundreds of dollars each year.

In the next article we discuss S Corp Business Structure along with the Liability and Tax Issues concerned with this entity.

Nevada Small Business Consulting has personal experience in the challenges associated with starting a small business, understanding what it takes to succeed in a competitive market. We have helped hundreds of small business owners with formation, 501(c)3 application, zoning issues, regulated licensing issues, employee manuals, business plans, and much more. Contact Vicki today at (702) 587-5652 to schedule a quick no-cost quote!