Sole proprietor

A sole proprietorship often referred to as a sole trader or proprietorship, is an unincorporated business with just one owner who is in charge of paying personal income tax on the profits made from the business.

The quickest and easiest way to launch a one-owner company is through a sole proprietorship. Once you start doing business, you become a sole proprietor. For new independent contractors, it is the most effective starting strategy. No federal or state forms are needed for its creation and there are fewer regulatory constraints.

Due to the fact that no separate legal body is established, a single proprietorship differs significantly from a corporation, LLC, or LLP. Unfortunately, the owner is not immune from the entity’s liabilities.

Taxation for Sole proprietors

The personal tax returns of sole owners include their revenue, spending, and payment of income and self-employment taxes on their profits. The following forms may be required:

  1. Income tax: 
    1. Form 1040, U.S. Individual Income Tax Return
    2. Schedule C, Form 1040, Profit or Loss from Business
  2. Estimated tax:
    1. 1040-ES, Estimated Tax for Individuals
  3. Social security and Medicare taxes:
    1. Form 941, Employer’s Quarterly Federal Tax Return
    2. Form 943, Employer’s Annual Federal Tax Return for Agricultural Employees
    3. Form 944, Employer’s Annual Federal Tax Return
  4. Income tax withholding:
    1. W-2, Wage and Tax Statement
    2. W-3, Transmittal of Wage and Tax Statements
  5. Self-employment tax:
    1. Schedule SE, Form 1040, Self-Employment Tax
  6. FUTA: 
    1. Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return

Source: Internal Revenue Service


For a person to launch a firm, a single proprietorship is an easy option. For the most part, it is not necessary to register with a state agency or receive an Employer Identification Number (EIN) from the IRS.

The advantages of simplicity come with some disadvantages, such as the transfer of all liabilities from the business to the individual and the difficulty in obtaining capital. In the beginning, the hazards shouldn’t be too problematic. But when the company expands, switching to a different legal framework can be a good idea.

The tax laws are very complex. Our short blog articles cannot cover in full all the nuances of the rules. Your specific facts may hold various opportunities and possible risks that only trained, experienced, and highly qualified tax specialists can spot. We encourage you to find such help, rather than trying to figure it all out on your own. Consider giving this marketplace a try by posting your project and signing up here.

If you are a licensed tax professional and are interested in helping others either part or full-time, or ad hoc, come on in! Happy to have you. Our marketplace has the full suite of tools to communicate with clients including compliance calendars, task and message management, and billing. You can also quickly connect to knowledgeable colleagues who can complement your services with the ones you do not provide. Register here.