| Sole proprietorship taxes are easy, because all income the business earns is treated as personal income. But this also means the owner is accountable if the business runs into financial trouble, like debt or bankruptcy. The owner’s personal assets can also be at risk if a claim is made against the business – for faulty workmanship or malpractice, for instance. One of the first steps that an entrepreneur must complete in order to start a business, is to decide which business structure they should choose. There are four primary business structures: Sole Proprietorship, Partnership, Corporation, or Limited Liability Company. This article will provide a brief introduction to the sole proprietorship. Future articles will introduce the other business structures. Show Overview: The term “sole proprietorship” is used to describe a business that is owned and operated by one person who is referred to as the sole owner or sole proprietor. For legal and tax purposes, the business does not have its own identity. The sole owner and the business are considered one in the same. Sole proprietorships are popular because they are the easiest and most inexpensive business structure to set up. Formation: In Iowa, sole proprietorships are not required to file organizational documents with the Iowa Secretary of State. To create a sole proprietorship, the sole owner must decide whether to operate using their personal name or to assume a business name. If a business name will be assumed, the owner must file a trade name filing with the county recorder in the county where the business is located. If the business will operate using the owner’s personal name, no county filing is required. Tax Responsibilities & EIN: Sole proprietorships do not need to file business tax returns, instead business profits or losses need to be reported on the sole owner’s personal tax return. Similarly, sole proprietors do not need to acquire an Employer Identification Number (“EIN”) unless they will hire employees. All businesses with employees are required to report wages to the IRS using their EIN. A sole proprietor without employees can use their own social security number for most things that an EIN would be used for. Some sole proprietors without employees prefer to acquire an EIN in lieu of using their own personal social security number. Unlimited Liability: Sole proprietorships do not have the protection of limited liability. Instead, the sole owner has unlimited liability. This means that the sole owner is personally liable for the debts and expenses of the business. If the business is sued, the sole owner risks losing their personal assets. To help protect their assets, a sole proprietor should consider obtaining a business liability insurance policy. Additional Considerations: Depending on the specific business activities, a sole proprietor may be required to report and pay certain taxes which are not discussed above, such as sales tax and use tax. The sole proprietor may also need to obtain licenses or permits. Please contact any of our business formation and startup attorneys if you would like additional guidance regarding this topic or assistance forming a business entity. Attorney Author  Sarah C. Barr Sarah C. Thielen is an Associate Attorney whose practice focuses on estate planning, tax law, and business law, with particular attention on start-up and formations. A sole proprietor is someone who owns an unincorporated business by himself or herself. However, if you are the sole member of a domestic limited liability company (LLC), you are not a sole proprietor if you elect to treat the LLC as a corporation. If you are a sole proprietor use the information in the chart below to help you determine some of the forms that you may be required to file. IF you are liable for:THEN use Form:Income Tax1040, U.S. Individual Income Tax Return or 1040-SR, U.S. Tax Return for Seniors and Schedule C (Form 1040 or 1040-SR), Profit or Loss from Business Self-employment taxSchedule SE (Form 1040 or 1040-SR), Self-Employment TaxEstimated tax1040-ES, Estimated Tax for IndividualsSocial Security and Medicare taxes and income tax withholding941, Employer's Quarterly Federal Tax Return 943, Employer's Annual Federal Tax Return for Agricultural Employees 944, Employer's Annual Federal Tax Return Providing information on Social Security and Medicare taxes and income tax withholdingW-2, Wage and Tax Statement (to employee) and W-3, Transmittal of Wage and Tax Statements (to the Social Security Administration) Federal unemployment (FUTA) tax940, Employer's Annual Federal Unemployment (FUTA) Tax ReturnFiling information returns for payments to nonemployees and transactions with other personsSee Information ReturnsExcise TaxesRefer to the Excise Tax webpageRelated TopicsBusiness Structures Forms for Sole Proprietorship Married Couples in Business Independent Contractor (Self-Employed) or Employee? Where to File Tax Returns - Addresses Listed by Return Type PublicationsAbout Publication 334, Tax Guide for Small Business (For Individuals Who Use Schedule C) About Publication 583, Starting a Business and Keeping Records Who is the owner of sole proprietorship business?A sole proprietorship is a business that can be owned and controlled by an individual, a company or a limited liability partnership. There are no partners in the business. The legal status of a sole proprietorship can be defined as follows: It is not a separate legal entity from the business owner.
What is the term used in referring to the owner of sole proprietorship?The term “sole proprietorship” is used to describe a business that is owned and operated by one person who is referred to as the sole owner or sole proprietor. For legal and tax purposes, the business does not have its own identity. The sole owner and the business are considered one in the same.
How does the owner of a sole proprietorship relate to the business?A sole proprietorship is a non-registered, unincorporated business run solely by one individual proprietor with no distinction between the business and the owner. The owner of a sole proprietorship is entitled to all profits but is also responsible for the business's debts, losses, and liabilities.
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Which of the following refers to the owner of a sole proprietorship business?
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