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:
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 CAdvantages:
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
Limited human resources
Lack of continuation at owner's death
Unlimited liability from creditors and lawsuits
Small BusinessA sole proprietorship is an unincorporated business that has one owner who pays the taxes on the profits of that business.
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