The Bottom of the Bowl of Alphabet Soup - Sole Proprietorships
Not because they are the dregs, but because this will the last installment about business types for now. Sole proprietorships are just that–a person toiling away on their or in concert with their spouse. Actually, sole proprietorships can have employees, and can get quite a bit of revenue rolling in.
Sole proprietorships are the simplest kind of business form. You grab yourself a business license and get going. You don’t even have to file for a federal ID number–you simply use your SSN if you wish. The owners of the business are limited to you and your spouse.
Sole props are allowed business deductions just like any other business, and all income and deductions are reported when you file your regular income tax return (hence the ownership restriction). No separate federal tax returns are needed; you will, however, still have to pay state and local business taxes and file state and local business returns.
Sole props create no barrier between you and liability. If the business becomes legally liable for something, it comes out of your pocket. This means your house, your car, your business property, etc. are all considered assets if you end up owing someone or some entity money, like the IRS. Most sole proprietors don’t have this worry, though–it’s what business insurance is for. Most of the sole proprietors I know are consultants of some kind, and because they are largely disseminating knowledge regarding non-life-threatening matters, their insurance is relatively inexpensive. I highly recommend business insurance anyway, but especially if you are a sole proprietor.
As I mentioned earlier, although sole props can have only two owners, they can hire as many employees as they wish. Sole props can also utilize personal vehicles and other personal belongings in the business and take the appropriate deductions for their use.
If you are just starting out and need a business license but are not sure where things are going next, this may be the business form for you. It’s inexpensive, quick, and gives you some legitimacy and a resale number off the bat.
