What is a Sole Proprietorship? – A sole proprietorship is a form of simple business which can be done by a single person also, it is not included as a legal entity. It classifies the person who is the owner of the business because the owner will only be responsible for all the losses of the company. A sole proprietor can work under the owner of the company and it can also work under a fictitious name, such as Pihu’s Nail Salon. The fictitious name is just a trading name of the company– it can not create any legal entity separate from the sole proprietor owner.
It is a popular form of business because of its simplicity, ease of setup, and nominal cost value. This type of proprietorship needs only when we have to register his or her name and secure local licenses, and then only the owner be ready for doing a business. There is one disadvantage that whatever is the condition the owner will be responsible for any type of losses in the business.
The owner of a sole proprietorship simply signs the contract by his or her own name, hence the sole proprietorship has no legal separate identity under any law. The sole proprietor will simply have some customers who write checks by the owner’s name, even if the business uses any type of fictitious name. The sole proprietor owners can, and often do, commingle personal and business properties and funds, something that the partnership does not have their bank account from the name of the owner. The sole proprietor does not need to see the formalities like votings and meetings which are related to the more difficult business forms. The sole proprietor can bring any lawsuits which can be used as the name of the sole proprietorship and which is graduated to more difficult forms as the business develops.
Because a sole proprietor is not different from the owner, hence sole proprietorship taxation is very simple. The income which is earned by the sole proprietorship is that income only which is earned by its owner. A sole proprietor has to report to sole proprietorship whatever profit or loss and income or expenses by filling out and filling a schedule C, along with the standard form of 1040. Your profit and losses are firstly recorded on the tax from Schedule C, which is filed along with your 1040. Then the “bottom-line amount” from Schedule C will be transferred to your personal tax return. This aspect is attractive because the business losses which you have occurred will change into your income later.
Must read – How to register a sole proprietorship in India?
As a sole proprietor of a business, you must have to file a Schedule SE form 1040. You have to use schedule SE to calculate how much self-employment tax you owe. You do not need to pay unemployment tax by yourself, although you must have to pay the unemployment tax on any employees of the business. of course, you will not enjoy the unemployment benefits should the business suffer.