CFP

AAA

Characteristics and Income Taxation of Business Entities - Sole Proprietorship

Sole Proprietorship
If the taxpayer is a sole business owner or professional in their own practice, they are usually practicing as a sole proprietor. In this type of entity, you report business profit or loss on your personal tax return.

Pertinent data on Sole Proprietorships:
Liability: Unlimited
Nature of Owner's Income: Self-employment income

Federal Tax Filing Forms Used
Income Tax: Form 1040, Schedule C
Self-employment tax: Form 1040, Schedule SE
Estimated tax: 1040-ES
Employment taxes: 941 (943 for farmers), 940 or 940-EZ, and 8109.
Additional forms for excise taxes.
Compensation reported: Form 1040, Schedule C


Advantages:
Low cost to establish & run
Pension plan contributions before-tax (not included as income to owner)
Up to 70% of medical insurance deductible for owners

Disadvantages:
Limited human resources
Lack of continuation at owner's death
Unlimited liability from creditors and lawsuits
Self-employment taxes

Partnerships
Related Articles
  1. How Much Does A Financial Advisor Earn?
    Investing Basics

    How Much Does A Financial Advisor Earn?

  2. Top 5 Forex Risks Traders Should Consider
    Economics

    Top 5 Forex Risks Traders Should Consider

  3. Funding Higher Education With An ISA
    Investing Basics

    Funding Higher Education With An ISA

  4. 7 Ways To Protect Against Credit Card ...
    Credit & Loans

    7 Ways To Protect Against Credit Card ...

  5. New 2015 Contribution Limits: Advisors ...
    Investing Basics

    New 2015 Contribution Limits: Advisors ...

Trading Center