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Five Reasons to Start Your Business as a Sole Proprietorship
New business owners always seem to wring their hands over the incorporation question. Should
they, or shouldn't they, incorporate their new business. Or, no, wait. Maybe an S corporation or limited liability
company makes more sense?
This obsessing over more sophisticated (and expensive!) entity options is too bad, however. New small business
owners can count at least five great reasons to start a small business as a sole proprietorship.
Reason 1: Simple Setup
As compared to incorporating or forming a limited liability company, sole proprietorships are a breeze. All you
really need to do is start. That's it.
Note: State and local governments often want you to get a business license so they can get your new business on
their business tax rolls. But getting a business license in many cases is pretty easy. Check the phone book or call
your local state or municipal government offices.
Reason 2: Easier Accounting
If you run your business as a sole proprietorship, you keep your accounting truly easy. If you're the only worker,
you won't even have to do payroll. Not having to do payroll saves tons of time, lots of money, and means you avoid
doing between five and ten payroll tax returns a year: quarterly federal and state returns, the annual federal
unemployment tax return, W-2s, and so forth.
What's more, you won't have to prepare balance sheets as part of your business tax return. Your sole
proprietorship's income and deductions will typically be reported inside your individual tax return on a single
page of paper.
In comparison, corporations and partnerships often do have to prepare balance sheets for their tax returns and a
boatload of other supporting schedules. Commonly a corporate tax return runs between ten and twenty pages in
length. Yikes.
Reason 3: Minor Children as Tax Shelters
If you employ your minor children in your business, a sole proprietorship offers up one of the sweetest small
business shelters there is. Amounts you pay your minor children count as a tax deduction for your business--which
saves you income taxes and self-employment taxes. But the amounts your minor children earn probably aren't taxable
to them for either income tax or Social Security and Medicare taxes purposes if they make less than the standard
deduction amount.
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