Why Forming A Sole Proprietorship Might Be The Right Choice For Your Business Or Might Not!

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A Sole Proprietorship is a business that is run by only one person. Most states do not require a sole proprietorship register the same way as a corporation or a limited liability company, often called an LLC. Check with your state to find out what your responsibilities are.  Without a doubt, it is the easiest form of business to set up and operate.  Some sole proprietorship owners will apply for a separate tax ID but most use their personal social security number.  What you might not know, you are required to register your business, will be responsible for all taxes for the business, and must apply for a license, and other permits if applicable.

Let's break down a Sole Proprietorship and what you need to know:

Starting A Sole Proprietorship & What You Need To Know:
 
Because some states do have laws in which a sole proprietorship must be registered and have a license to operate, always check ahead of time.  You will have to acquire all required permits in order to operate. It's important to understand that you should not use your business as a tax shelter or other escape clause for your profits.  The profits made from your business will be viewed as income that must be claimed on your personal tax returns. 
 
The Disadvantages Of A Sole  Proprietorship:
 
Unlike a Corporation or a Limited Liability business, you will not reap the benefits they enjoy.  Although a sole proprietorship is the easiest to set up, keep in mind, any debts your business incurs, you will have to pay.  If you don't, creditors can come after you and seize your personal assets if you cannot afford to pay them off.  If you get into trouble with a sole proprietorship, it could wipe out your bank account and your home could be possessed.
 
Sole Proprietorships & Taxes:
 
A sole proprietorship is seen as a business and owner as one.  Unlike other business structures that pay their taxes through the company, you are personally responsible for taxes.  All taxes are claimed by the owner, including all losses and gains.  Along with withholding funds for Federal and State taxes, you might also have to pay taxes for your social security and Medicare.
 
How Registration Works:
 
You will have to register and pay a small tax which will then give you a license and tax registration certificate in order to run your business.  You should also apply for a federal employer identification number through the IRS.  This identification number will allow you to withhold taxes from future employees you might hire. Also, apply for a zoning permit from your local land planning board, if applicable.
 
If you want a business name instead of using your name, you have to register the name with your local county or state and known as a DBA or Does Business As.
 
Before starting a Sole Proprietorship, you should know all your personal responsibilities and consequences that might come along.  Talk to someone who has the knowledge and experience in business structuring to find will work best ​.