Selecting the right entity structure for your business is important for long-term success. Let NCH help you decide if Sole Proprietorship is the right choice for you.
Recommended by accountants and attorneys for its simplicity, sole proprietorships are the quickest way to start a business and the easiest from a tax standpoint. As a sole proprietor, you don’t have to file a separate business tax return. Instead, you simply attach a Schedule C to your 1040 and file it with the IRS. Gains, losses, and other taxable items from your business are all combined.
But with simplicity comes risks. With no legal distinction between yourself and your business, business liabilities become personal liabilities. If sued, judgment can come against your personal assets meaning you risk losing everything for your business. It’s also difficult to raise capital as a sole proprietor since it relies on you qualifying for a personal loan.
Lastly, sole proprietorships limit your ability to participate in things like federally qualified pension plans and medical reimbursement plans which are available to other business entities.
Overall, sole proprietorships are risky entities, and as such, are not a good long-term business solution.
- Ease of Formation
- Pass-Through Tax Treatment
- Personal Liability
- Lack of Continuity
- Lack of Investment