Sole Proprietorship
A Sole proprietorship is a business entity that is owned and run by a single person, thus the name sole proprietorship. A sole proprietorship is not a separate legal entity and under the eyes of the law it does not make any distinction between the business itself and the owner. Since there is no legal distinction between the business and its owner, you don’t need to complete any paper work to start your business, which makes it the simplest business. Most webmasters and freelancers who work alone are sole proprietors, unless they went out of their way to form an LLC or C-Corporation.
Advantages of a Sole Proprietorship
- Requires no set up.
- Single owner holds exclusive control of business.
- Not required to file annual reports
Disadvantages of Sole Proprietorship
- Personally liable for all business debts
- Unlimited liability legal liability (Lawsuits)
- Cannot sell equity in business, as there is no separate legal entity
Filing Taxes as a Sole Proprietorship
Since the law makes no distinction between the business and its owner in a sole proprietorship, you don’t need to do anything out of the ordinary when filing your taxes. You simply have to complete your tax return and fill out schedule C (Form 1040). Like all self employed individuals, you will be responsible for Self Employment Tax.