Should You Be A Sole Proprietor?

June WalkerOur dear friend (and partner and speaker again at this year’s CFC), June Walker, has generously shared excerpts from her new book, The Confident Indie: A Simple Guide to Deductions, Income and Taxes for The Creatively Self-employed.

She’s also offering a special discount to readers: use promo code, “Confidence” and get 15% off anything on her web site through June 30! Do that now and come back to read the book excerpt!

The Characteristics And Advantages of A Sole Proprietorship

  • You and your business are one and the same.
  • A sole proprietor and his business use the same tax year.
  • Its income or loss is your income or loss. (This is referred to as pass-through, which we’ll look at in a moment.)
  • Its debts and assets are your debts and assets.
  • Assets, originally for personal use, can immediately be used in your business without paperwork and without negative tax consequences. And, there can be positive tax consequences without any cash outlay.
  • It’s the easiest, quickest and cheapest business structure to set up and maintain with regard to recordkeeping, accounting, legal procedures and fees.
  • The most flexible business structure is a sole proprietorship.
  • It is the only business tax entity that does not require a separate tax return. A federal Schedule C: Profit or Loss From Business and a few other pages are added to your personal tax return. These pages show the income and expenses of your independent endeavor.
  • Only a sole proprietorship allows for a simple, direct deduction of home office expense.
  • A business loss can immediately reduce your other taxable income.
  • Taxes are not paid twice on the same income – as can happen with a corporation.
  • Recent tax law changes have made sole-proprietorship the most tax-advantageous pass-through tax structure for a one person business.
  • A sole proprietorship allows for the most advantageous tax remedy when husband and wife work in the same business.
  • It is easy to change from a sole proprietorship to another business structure – such as a partnership or corporation – when your situation warrants it.

Three Disadvantages of Being A Sole Proprietor – And Three Antidotes

  1. You are personally liable. Yes, they can take your house if your massage oil gave someone a skin rash that ruined her performance at the piano competition and so destroyed her future earning potential. Antidote: Get adequate liability insurance appropriate to your business activities and assets. Insurance can be much less expensive than incorporating.
  2. And the reverse: Business assets can be confiscated to pay personal debts. Yes, they could take your computer if you owe money on your credit card or to your dentist. Antidote: Watch your spending.
  3. Audit rates are higher than for other business entities. Antidote: Don’t flinch. Good records will get you through an audit. The confident indie who keeps good records will lead the way.

You may learn more about business structure at junewalkeronline.com/.Conf-Indie-3 cover

Excerpt from The Confident Indie: A Simple Guide to Deductions, Income and Taxes for The Creatively Self-employed. CHAPTER 5: THE MOST SIMPLE BUSINESS STRUCTURE

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