What are the benefits/disadvantages of filing as sole proprietor?

Hi Daria! 

Filing as a sole proprietor means that you file a Schedule C with your 1040 (Personal Tax Return), meaning there’s no separate business tax filing (compared to an S-Corp for example). On your schedule C, you would report all your income and claim business-related expenses and you would be responsible for self-employment taxes and income taxes. Since it’s a single tax filing, this also means that your business income is taxed as part of your personal income so if you didn’t have too many expenses and profits (sales minus expenses) are high, that could push you into a higher tax bracket and pay a higher percentage of your income in taxes than you would with a different business structure. 

While it’s simple to set up, it doesn’t offer much protection (as opposed to an LLC or an S-Corp) and has very few tax advantages. However, it’s a great starting point until your income is substantial enough to where electing to be treated as an S-Corp makes sense. 

We’re doing another webinar on Feb 26 all about business structures and tax savings for next tax seson, keep an eye out for that!