Sole Proprietorship
Advantages Disadvantages

Sole Proprietorship Advantages Disadvantages

Sole Proprietorship Advantages

  • Easiest and least expensive form of ownership to organize.

  • Sole proprietors are in complete control, and within the parameters of the law, may make decisions as they see fit.

  • Sole proprietors receive all income generated by the business to keep or reinvest.

  • Profits from the business flow-through directly to the owner's personal tax return.

  • The business is easy to dissolve, if desired.

Sole Proprietorship Advantages Disadvantages

Sole Proprietorship Disadvantages

  • Sole proprietors have unlimited liability and are legally responsible for all debt
    against the business. Their business and personal assets are at risk.

  • May be at a disadvantage in raising funds and are often limited to using funds from personal savings or consumer loans.

  • May have a hard time attracting high-caliber employees, or those that are motivated by the opportunity to own a part of the business.

  • Some employee benefits such as owner's medical insurance premiums are not directly deductible from business income (only partially deductible as an adjustment to income).

Federal Tax Forms for Sole Proprietorship

  • Form 1040: Individual Income Tax Return

  • Schedule C: Profit or Loss from Business (or Schedule C-EZ)

  • Schedule SE: Self-Employment Tax

  • Form 1040-ES: Estimated Tax for Individuals

  • Form 4562: Depreciation and Amortization

  • Form 8829: Expenses for Business Use of your Home

Sole Proprietorship Advantages and Disadvantages

Sole Proprietorship: You will want to take into account the following:

  • Your vision regarding the size and nature of your business.

  • The level of control you wish to have.

  • The level of "structure" you are willing to deal with.

  • The business's vulnerability to lawsuits.

  • Tax implications of the different ownership structures.

  • Expected profit (or loss) of the business.

  • Whether or not you need to re-invest earnings into the business.

  • Your need for access to cash out of the business for yourself.

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