Advantages and Disadvantages of Sole Proprietorship

Advantages - Disadvantages - Sole Proprietorship

Sole Proprietorship: Advantages

• Easiest and least expensive form of ownership to organize.



• Sole proprietors are in complete control, and within the limits of the law, may make decisions as they see develope.



• Sole proprietors receive all income generated by the business to keep or reinvest.



• Profits from the business flow-through directly to the owner's personal tax return.



• The business is easy to dissolve, if desired.

Sole Proprietorship: Disadvantages

• Sole proprietors have unlimited liability and are legally responsible for all debt
  against the business. Their business and personal assets are at risk.



• May be at a disadvantage in raising funds and are often limited to using funds from personal savings or consumer loans.



• May have a hard time attracting high-caliber employees, or those that are motivated by the opportunity to own a part of the business.



• Some employee benefits such as owner's medical insurance premiums are not directly deductible from business income (only partially deductible as an adjustment to income).

Federal Tax Forms for Sole Proprietorship

• Form 1040: Individual Income Tax Return



• Schedule C: Profit or Loss from Business (or Schedule C-EZ)



• Schedule SE: Self-Employment Tax



• Form 1040-ES: Estimated Tax for Individuals



• Form 4562: Depreciation and Amortization



• Form 8829: Expenses for Business Use of your Home

• Your vision regarding the size and nature of your business.



• The level of control you wish to have.



• The level of "structure" you are willing to deal with.



• The business's vulnerability to lawsuits.



• Tax implications of the different ownership structures.



• Expected profit (or loss) of the business.



• Whether or not you need to re-invest earnings into the business.



• Your need for access to cash out of the business for yourself.