Monthly Archives: February 2021

All About Sole Proprietorship FAQs

If you are the owner of a sole proprietorship, you do not have to file a separate tax return for your business. When you file your personal tax return, you may have to submit a Schedule C (profit or loss from the business) or Schedule C-EZ (net profit), as well as a Form SE (self-employment tax) for your sole proprietorship.

Can you hire employees if you’re a sole proprietor?
According to LegalZoom, a sole proprietor can hire employees, but you must be careful to avoid violating any local or state regulations. Further, you need to first obtain an employer identification number (EIN). The EIN is needed for tax purposes, and the sole proprietor can’t use his or her Social Security number in place of a legal EIN.

What is the difference between a sole proprietor and a self-employed individual?
Sole proprietor and self-employed mean the same thing essentially. A sole proprietor is the only – the sole – person who runs his or her business. A sole proprietor is not the same as an independent contractor. An independent contractor typically works for another organization or multiple organizations, such as a creative professional – a graphic artist or writer.

An independent contractor will not have taxes held from any payments. Sole proprietors are responsible for paying taxes associated with their businesses.

What are the insurance implications of forming a sole proprietorship?
Sole proprietors are not shielded from any debts or liabilities incurred by the business. Due to personal liability, sole proprietors usually must secure some type of insurance as a way to stay protected in the case of lawsuits. The sole proprietor would want to secure either a small business insurance policy or general liability policy.

Does a sole proprietor receive a salary?
No, a sole proprietor does not receive a salary. Therefore, you can’t pay yourself a salary and receive a tax deduction for a salary. Your pay is dependent on the fees you collect for the products or services you provide to your customers.