1 of 3

Write now Article Tools

Sole proprietors are taxed a flat rate of 15.3% for business income up to $97,500, and half the tax is deductible from regular income. Sole proprietors are individuals who work as contractors, sub-contractors and otherwise provide a product and/or service as a company that is not a partnership, limited liability corporation, small business or corporation. Sole proprietorships are directly liable for business expenses and legal actions taken against the sole proprietors. Sole proprietors do not have to be incorporated and may or may not have employer identification numbers. In such cases, social security numbers are required for tax identification.

Specific tax implications exist for sole proprietors that do not necessarily exist for regular income earners. For example sole proprietors are subject to self-employment tax, and additional tax reporting requirements such as employer filings and business income and expense reporting. These additional responsibilities necessitate the use of additional tax forms to be filed alongside an Internal Revenue Service form 1040. Despite the necessity for additional tax forms, the financial benefits for filing taxes as a sole proprietor may be advantageous and worth the time it takes to fill out the extra forms.

SOLE PROPRIETOR TAX FORMS:

A sole proprietor can file with a regular 1040 and a schedule C or C-EZ. The income or loss that is incurred through the sole proprietorship is then reported on form 1040 as business income or loss. Typically a schedule C includes information such as the nature of business, employer identification number if any, address, income, expenses, vehicle expensing etc.

Sole proprietors are subject to self-employment tax of approximately15.3% which is reported on the form 1040 schedule SE. Half of the self-employment tax is deductible from regular income in the adjustments section of the form 1040. Self-employment tax is not reduced by standard or itemized deductions.

If a sole proprietorship has employees, form W2's should be submitted to the IRS and the employees indicating income and withholdings for the employees. A sole proprietor may also have income from other sources of income outside the business that should be filed along with the 1040 as regular income. Such income may include capital gains, interest income and wages from regular employment.

SOLE PROPRIETOR TAX TIPS:

When filing taxes as a sole proprietor it can be a good idea to be aware of as much as the tax rules and regulations as possible.

• 1
• 2
• next page >>

Add your voice

Know something about Filing taxes as sole proprietor?
We want to hear your view. Write now!