A sole proprietorship has many advantages for small business owners. One of these is that, unlike corporations, the company is not doubly taxed. Consult an Arlington business attorney to determine whether a sole proprietorship is appropriate for your company.
The taxes a sole proprietorship pays are made through the owner’s personal income taxes. This is referred to as pass-through taxation because the taxes pass through the company to the individual’s return.
Owners of sole proprietorships pay taxes on all profits, regardless of whether any of the money is put aside for future expenditures. As the owner of the sole proprietorship, though, you are allowed to deduct expenses just as you would with other business types. These include cost of operation, advertising, travel, equipment, and certain start-up expenses.
Your Arlington business lawyer will tell you that it is important to keep your personal and business expenses separate from each other. Make sure that you maintain separate accounts. This will help prevent mixing the two. Make sure you don’t pay any business expenses out of your personal account.
You will need to estimate and pay taxes on a quarterly basis. Moreover, you will need to pay the full cost of Social Security withholding. As an employee of a company you would pay only half of this. The rate is 15.3% on the first $118,500, with 2.9% to be withheld for earnings above this amount. Since you have this added expense, the IRS allows you to deduct half of this withholding from your taxes. When you file taxes you will need to include Schedule C, Profit or Loss from a Business, with your Form 1040.
It is very important from the outset of a company start-up that you choose the form of business that is right for your needs. You may find it in your best interests to work with an Arlington business attorney. Call Schleifman Law, PLC today.