|
The Basics of Sole Proprietorship |
|
If you are planning on starting a business on your own, then the simplest way to do so is through sole proprietorship. This is a one-person business that is not incorporated in any way, or is not a limited liability company.
They are extremely easy to set up and maintain, and many people own one without even knowing it. This happens very often with freelance workers, consultants, and independent contractors. That doesn’t mean that you shouldn’t know the basics of a sole proprietorship because you still have to comply with local registration, business licenses, or permits that are required by law if you need them. You should also run your sole proprietorship in a more professional manner and can only do so if you do the research and knowing exactly what is involved when it comes to paying income taxes and business debts.
A sole proprietor is held personally liable for all business related debts or obligations. This means that if your business doesn’t pay a creditor dealing with your business, or defaults on a business loan then you personally can be held liable. The creditors could come after your home, car, or other assets even if they have nothing to do with the business itself. This is very different from being incorporated which lessens your liability and puts most if not all of it on the corporation itself. If you have a high risk business then sole proprietorship is not necessarily the best course to take.
Since in the eyes of the law, a sole proprietorship is not legally separate from the personal being, you are responsible for reporting all business income or losses on your individual income taxes. You need to withhold and pay all of your income taxes just as you would if you are a normal employee except you will be responsible for knowing how much to take out instead of having your company do it for you. You will also have to pay a self employment tax which is basically making contributions to Social Security and Medicare which is normally taken out of every check if you work for someone else.
To start a sole proprietorship you do not have to file any special forms or pay large fees as you would when you incorporate your business. You simply have to state that your business is a sole proprietorship when you complete the general registration requirements that apply to all new businesses. However, most cities and counties do require that you register with them and pay a minimum tax. In return you will get a business license or tax registration certificate. You may also have to obtain an EIC or Employer Identification Number, from the IRS so that you can file your taxes accordingly, as well as a seller’s license, and possibly a zoning permit.
A sole proprietorship is really the easiest way to go if you are just starting up and are unsure if you want to be incorporated. You can easily switch later on when your business grows and you are finding that you need to expand into being a corporation.
If you are an entrepreneur thinking of running a small business from your home office, then The Tax Club can prove to be an extremely powerful resource for your endeavor.
 |
Articles 
Delicious
Technorati
Digg
YahooMyWeb