Category Archives: business

Know the Benefits and Disadvantages of a Sole Proprietorship

Many businesses start out as sole proprietorships, and there’s a good reason to do so: A sole proprietorship is very simple and inexpensive to process.

“There is no cost to organize, and you don’t have to renew your business entity yearly with the state,” said Matt Jensen, a certified public accountant at Cook Martin Poulson. There are no requirements for annual owner meetings or filings with states, and in general, there is less administrative work, he said.

Sole proprietorships do not need to be renewed annually, they require less paperwork and they don’t cost much to process.

What are the disadvantages of a sole proprietorship?

Although a sole proprietorship is one of the simpler business entities, it puts a lot of responsibility on business owners. It offers zero legal protection of your personal assets, and there can be only one owner.

“If a business owner was sued, the owners could literally lose their personal car and personal home because of a business liability,” Jensen told Business News Daily.

Sole proprietorship also poses some security risks. “Another con is that when a business identification number is needed, the owner has to give out their Social Security number, greatly increasing the chance of identity fraud,” Jensen said.

Another drawback is that sole proprietors are not eligible for certain business tax breaks and small business loans. They could, however, be eligible for certain tax deductions intended for self-employed individuals.

Sole proprietorships provide no legal protection for business owners’ personal assets and aren’t eligible for certain business tax breaks or small business loans.

What are the tax implications of a sole proprietorship?

When filing your taxes as a sole proprietorship, you report your business’s income and losses on your personal tax returns. You’re also required to submit a Schedule C, “Profit or Loss from the Business,” as part of your IRS 1040 filing. This form is used to document the income and expenses for your business.

“A sole proprietorship doesn’t have to file a separate [business] tax return,” Jensen said. “A business schedule is attached to the owner’s personal tax return.”

Income earned by sole proprietorships is treated like personal income, which is why it’s reported on your personal tax return.

You may instead be able to submit Schedule C-EZ, which documents your net profit from the business. Because the sole proprietor is considered both the employer and the employee, he or she is responsible for paying both the employer and employee portions of Social Security and Medicare taxes through Form SE, “Self-Employment Tax.” The employer portion of the tax can be claimed as a tax deduction when filing your tax return, however.

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.

What is Day Trading?

When some people think of successful day traders, they think of multimillionaires lounging in a beach town, making trades and relaxing. That reality is rare, and day trading isn’t as easy or lucrative as it might seem from the outside. Despite challenges, some people elect to day trade as a part-time job, or they take on day trading as their full-time gig. If you know your stuff and follow a strategy, you can make money over time through day trades.

If you’re interested in the idea but unsure of how to become a day trader, we’ll take you through the steps. We spoke with experts about the perks and perils of day trading, and they shared insights on how someone can break into the industry.

Day trading refers to buying and selling securities and stocks, then selling them within the same day with the goal of making a profit. At the close of the market day, a day trader will have closed all their positions and realized any gains or losses.

Day trading is the opposite of a long-term investment strategy, in which one holds stocks or securities in hopes that they appreciate in value over time. Instead, day trading is about buying the dips and selling high in the short term – the long-term prospects of a stock or security mean far less than immediate volatility.

Day trading can be risky. Day traders are inevitably going to lose money on trades, and it can be quite difficult to become a profitable day trader.

A day trader is someone who buys and sells stocks and securities in a single day, hoping to make a profit on short-term activity. Day trading can be risky.

What is a swing trader? A swing trader is similar to a day trader, but they are not the same. A swing trader makes trades over multiple days in hopes of profiting off longer-term fluctuations in the stock market. Swing traders may sell some of their securities one day and buy more a few days later, but the idea is to allow more time for the investment to go through peaks and valleys while still owning it during that process. Normally, swing traders own securities for a few days or weeks. Day traders don’t do this, as they only own securities for a day, although both day traders and swing traders perform a type of short-term trading.