Sole Proprietorships for Online Store Businesses ExplainedA sole proprietorship is a legal business entity owned and operated by a single individual or a married couple. A sole proprietorship is also the easiest and least expensive way to start a business online and/or from home. In a sole proprietorship the individual who owns and operates the business is personally liable for all business debts as well.
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Sole Proprietorships for Online Store Businesses Explained
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All assets of the business become personal property to the owner. Although a sole proprietorship is owned and operated by an individual person, you can still conduct business with a trade name other than your legal name.
This also allows you to open up a business bank account in the name of your business name. As a sole proprietorship you are responsible to file for income tax each year and you will be taxed on the total income of the business minus business expenses. And filing for taxes is as simple as visiting your local tax preparers’ office and letting them do all the work or you can file for taxes yourself. |
Filing for taxes
When filing for taxes as a sole proprietorship, income that is earned by the business is seen as income earned for the business owner as well and must be reported on an IRS Form 1040.
Business expenses are claimed as deductions against income for the year. And in a sole proprietorship business which is run from home, there are many things that can be written off as business expenses, (when the expense pertains to the business). This includes a portion of the rent, utilities, purchases etc…
As a sole proprietorship you are taxed on all net income of the business after business expenses have been deducted. However, if you’re going to use a portion of that income to invest back into the business or simply hold it as business capital then you may want to consider forming your business as a C-Corporation.
As a C-Corp, you can set aside unused funds as capital for the business without being taxed on those funds as earned income.
Yet investing in areas such as marketing for your business can be added as a business expense as well.
You can report income for your sole proprietorship using a Schedule C which is attached to your annual 1040 form. And by filing as a Schedule C you may be able to obtain business deductions for losses as well.
Business expenses are claimed as deductions against income for the year. And in a sole proprietorship business which is run from home, there are many things that can be written off as business expenses, (when the expense pertains to the business). This includes a portion of the rent, utilities, purchases etc…
As a sole proprietorship you are taxed on all net income of the business after business expenses have been deducted. However, if you’re going to use a portion of that income to invest back into the business or simply hold it as business capital then you may want to consider forming your business as a C-Corporation.
As a C-Corp, you can set aside unused funds as capital for the business without being taxed on those funds as earned income.
Yet investing in areas such as marketing for your business can be added as a business expense as well.
You can report income for your sole proprietorship using a Schedule C which is attached to your annual 1040 form. And by filing as a Schedule C you may be able to obtain business deductions for losses as well.
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Yet if your business is a small business with low earnings then you may be able to file income using a Schedule C-EZ form. And to do so, your business must meet the following conditions:
1- Gross receipts of less than $25,000
2- Claimed business expenses of less than $2,500
3- No inventory
4- No employees
5- Cash accounting methods are utilized
6- No depreciation of assets is claimed
7- No overall loss is being claimed
1- Gross receipts of less than $25,000
2- Claimed business expenses of less than $2,500
3- No inventory
4- No employees
5- Cash accounting methods are utilized
6- No depreciation of assets is claimed
7- No overall loss is being claimed
Advantages of a sole proprietorship:
Easy start up, low costs, fewer regulations, and individual decision making are all advantages of forming your business as a sole proprietorship.
Filing for taxes is a simple process as well. Furthermore, you will not be taxed with a double taxation, as you would be taxed with a corporation.
When operating as a sole proprietorship, the profits of the business go to the owner of the business and no one else.
As the sole owner you’re able to make and carry out business decisions right there and then without having to check with anyone. You are in control of your business, all of the time. And you won’t have to deal with any disagreements with partners as there are no partners involved within a sole proprietorship.
Filing for taxes is a simple process as well. Furthermore, you will not be taxed with a double taxation, as you would be taxed with a corporation.
When operating as a sole proprietorship, the profits of the business go to the owner of the business and no one else.
As the sole owner you’re able to make and carry out business decisions right there and then without having to check with anyone. You are in control of your business, all of the time. And you won’t have to deal with any disagreements with partners as there are no partners involved within a sole proprietorship.
Disadvantages of a sole proprietorship:
One disadvantage of forming your business as a sole proprietorship is the ability to raise capital if capital is needed.
If capital becomes a necessity for any reason then it may become difficult to raise or borrow such capital as a sole proprietorship. Furthermore, you as the sole owner of a sole proprietorship take on all liability for business debts, profits and losses as well.
Yet as your business grows, and earnings increase, then risk also becomes a factor. And the more your business grows then the more valuable your business becomes. Yet you can minimize such risk by transforming your business into a corporation or a limited liability company. However, there is no reason to worry about such risk for now, nor in the future.
If capital becomes a necessity for any reason then it may become difficult to raise or borrow such capital as a sole proprietorship. Furthermore, you as the sole owner of a sole proprietorship take on all liability for business debts, profits and losses as well.
Yet as your business grows, and earnings increase, then risk also becomes a factor. And the more your business grows then the more valuable your business becomes. Yet you can minimize such risk by transforming your business into a corporation or a limited liability company. However, there is no reason to worry about such risk for now, nor in the future.
Registering a sole proprietorship business
You can register a sole proprietorship business just by registering your business name. And you can register your business name with your state or county clerks’ office.
Contact your county clerks’ office to request forms, fees and procedures. Fill out the forms and send them back in with the correct filings fees.
Once your business name is registered, then your business becomes registered and established as a sole proprietorship as well.
You may also be required to place an ad in your local news paper publicizing the use and ownership of your new business name.
Then (in most states) you must submit proof of your publication to the county clerks’ office in order to complete the process of registering your business name.
Then you will receive a certificate in the mail as proof of business ownership.
Easy set up and low start-up costs are the main reasons why there are over 20 million sole proprietorship businesses in the United States today.
Starting a business as a sole proprietorship is recommended for most beginners due to such simplicity and advantages as well. And that’s why starting your business as a sole proprietorship may be the best way for you to go.
Contact your county clerks’ office to request forms, fees and procedures. Fill out the forms and send them back in with the correct filings fees.
Once your business name is registered, then your business becomes registered and established as a sole proprietorship as well.
You may also be required to place an ad in your local news paper publicizing the use and ownership of your new business name.
Then (in most states) you must submit proof of your publication to the county clerks’ office in order to complete the process of registering your business name.
Then you will receive a certificate in the mail as proof of business ownership.
Easy set up and low start-up costs are the main reasons why there are over 20 million sole proprietorship businesses in the United States today.
Starting a business as a sole proprietorship is recommended for most beginners due to such simplicity and advantages as well. And that’s why starting your business as a sole proprietorship may be the best way for you to go.
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