Are you a writer or a photographer? Are you an individual who takes on jobs on a contract basis? Are you a freelance caterer who gets paid per booking? Or are you perhaps a salesman who relies on commissions? You may not be aware of this but you already own a sole proprietorship business. You automatically become a sole proprietor if you are not registered as a corporation or an LLC and not part of a payroll.
While it may sound like something to be really proud of, you must not forget that you have responsibilities to face. This includes registering your services, getting a business license, and avail law permit so you can operate legitimately. Keep in mind that although you will solely enjoy the benefits of your business, you will also have to endure alone whatever financial problems your business will encounter.
Below are some of the basics of sole proprietorship that you must remember.
Sole proprietorship means you have the sole liability for business debts. This means you alone will have to face the firing squad sent by the creditor if you so fail to pay a supplier, or if you fail to pay debts, or lose to litigation. You will risk losing your properties, your house, and other earthly possessions.
Other than that, in the eyes of the IRS you as the owner of your business will have to report all income and losses on Form 1040. You will have to pay a self-employment tax including contributions to Medicare and to Social Security.
Registering your business is fairly easy. You don’t have to go the long mile that LLC and corporations have to go through when filing their business. All you have to do is indicate that you’re doing this business solo and voila! You are good to go.