Sole Proprietorship is a unincorporated business that is owned by one individual. It is the simplest form of business organization to start and maintain. The business has no existence apart from you, the owner. Its liabilities are your personal liabilities and you undertake the risks of the business for all assets owned, whether or not used in the business. You include the income and expenses of the business on your own tax return.
It is the easiest business to organize minimal legal restrictions. The entity does not exist apart from the owner. Business comes into existence simply by the individual’s act of engaging in business transactions. Business ends when individual stops engaging in business.
The form of business you operate determines what taxes you must pay and how you pay them. Sole Proprietor pays income taxes and self-employment taxes.
Self-Employment Tax (SE TAX) is a social security and Medicare tax primarily for individuals who work for themselves. It is similar to the social security and Medicare taxes withheld from the pay of most wage earners.
Self-Employers file Schedule C/1040 and in order to do so everyone must keep good records. This helps to monitor the progress of your business, whether you’re business is improving, which items are selling, or what changes you need to make. This also increases the likelihood of business success.
A Sole Proprietor has to make estimated tax payments (1040ES), if you expect to owe taxes, including self-employment tax.
For additional information regarding self-employment, refer to:
- IRS PUBLICATION 17, YOUR FEDERAL INCOME TAX
- IRS PUBLICATION 334, TAX GUIDE FOR SMALL BUSINESS (FOR INDIVIDUALS WHO USE SCHEDULE C OR C-EZ)
- IRS PUBLICATION 583, STARTING A BUSINESS & KEEPING RECORD