Sole Proprietorship Information Reporting Requirements
Well, having made the decision of starting a business, your next step needs to be deciding what kind of company to have. Many people hate paperwork and want to create just a basic one person little company.
The simplest form of business is known as the sole proprietorship. If you want to start a business tomorrow and not have to worry about filing documents, getting lawyers, and so on, this is the business format for you. While there are many benefits of becoming a corporation, many people prefer the simplicity and lack of reporting requirements that a sole proprietor (SP) has.
Often times the only required form for this business is a "doing business as" (DBA) statement if you happen to choose to use a name different than your given one. This may have to be filed on a local or state level. Check with a nearby CPA for further clarification in your area.
Besides for these reporting requirements there really is nothing else you have to do in regards to required qualifications. Setting up an SP can take just minutes and often times people have their first sales on the very first day of business. Some people prefer to do things themselves and basically create a DIY sole proprietorship. While a savvy business person could do this, often times it is still in a person's best interest to get the help of a professional.
In regards to taxation, the sole proprietor will file a schedule C on his or her personal income tax return. The benefits to this are the reduced paperwork and cost associated with having a complex corporation. While the taxation for a sole proprietor is much simpler, it does not mean that proper tax planning for your business should be avoided. Often times there are numerous ways to reduce your taxable income and keep more money in your pockets.
A CPA or tax professional will be able to get you started in the right direction. However, be sure to check their qualifications. Setting up an appointment should only be the first step in having someone help you in your company's financial matters. Following up on their references is important to know who you are hiring.
Often times clients are surprised with the amount of money they can save with proper tax planning. Even a small business can save a fortune and this can be the difference between staying in business or closing the doors for good.
To summarize, the best things about a sole proprietorship is its simplicity. It is simple to create, taxes are a breeze, and not much thought has to go into starting your own business. However, there are many risks to not being incorporated. All your personal assets are at risk and if anything bad would happen you could lose your house you live in too. Nothing is off limits, in case of a lawsuit, since you and the business are considered the same entity.
If you are having trouble comparing the risks and rewards of being a sole proprietor it is best to talk to a CPA so you can sleep better at night. Spending a few dollars now could save you thousands down the road.