CFP

By Investopedia 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

You May Also Like

Related Articles
  1. Trading Strategies

    5 Ways To Adapt To Tough Markets

  2. Professionals

    Want To Be A Financial Planner? Eye ...

  3. Personal Finance

    Credit Risk Analyst: Boring Title, Great ...

  4. Mutual Funds & ETFs

    Position Your ETF Portfolio For Success ...

  5. Investing Basics

    How Much Does A Financial Advisor Earn?

Trading Center