Five Reasons to Use a Sole Proprietorship

Self Employed Health Insurance Deduction S Corporation - Five Reasons to Use a Sole Proprietorship

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Getting ready to start your own business? You've got a bunch of different choices as to the entity type, including forming a corporation or a exiguous liability company. But don't make the mistake the over-looking the sole proprietorship option. For new entrepreneurs starting a small business, a sole proprietorship offers five big benefits.

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Self Employed Health Insurance Deduction S Corporation

Reason #1: Setup Simplicity

Here's a first think to start your new company as a sole proprietorship: It's easy.

In fact, you of course don't need to do anyone to "start" your new company as a sole proprietorship. By starting your business, you originate your sole proprietorship. Period.

Note that state and local governments typically do want to license businesses, however, including businesses operating as sole proprietorships. Do check out the local phone book or hunt your state government's web site for licensing information associated to starting a company like yours.

Reason #2: Easy Tax Accounting

Easy tax accounting counts as a second think to use a sole proprietorship.

As compared to corporations and partnerships, a sole proprietorship keeps your tax accounting simple. A sole proprietorship reports its earnings and deductions to the federal and state government using a one-page tax form, a program C. The program C tax form, ready from the http://www.irs.gov web site, is essentially a simplified behalf and loss statement.

Note that many small corporations, exiguous liability clubs and partnerships need to include equilibrium sheets as part of their tax returns. And equilibrium sheets greatly complicate a small business's accounting and the tax return.

Reason #3: Hiring the Proprietor's Children

A third think to think the sole proprietorship option: A sole proprietor who wants to hire his or her minor children often saves a bundle on taxes. Here's why: The sole proprietor who hires his or her minor children (under the age of 18) can deduct the amounts paid to the kids as wages. Yet the wages typically aren't chargeable to the kids. (The actual rule is that the wages aren't chargeable as long as the children make less than the appropriate deduction amount-roughly ,000 a year.)

And it gets even better: These wages typically don't ratchet up the business's payroll taxes because wages paid to minor children aren't branch to communal Security, Medicare and Federal Unemployment taxes.

Note: A flourishing sole proprietor with kids who help out in the company could of course save in the middle of ,000 and

,000 a year per child by using this tax loophole.

Reason #4: Easier Self-employed health insurance Deductions

A fourth think to use a sole proprietorship concerns the self-employed health insurance deduction.

A sole proprietor can commonly of course use his or her health insurance as an earnings tax deduction.

Furthermore, with a bit of extra paperwork, in some situations, a sole proprietor employing a spouse may be able to deduct all healing expenses as company tax deduction.

To deduct all of the proprietor's family's healing expenses as a company tax deduction, the sole proprietor needs to set up something called a healthcare repayment arrangement. (Get your accountant's help if you want to do this-the setup process can be a bit tricky and traps exist for the unwary.)

Note: Corporations, partnerships and exiguous liability clubs can deduct self-employed health insurance, too.

But taking the deduction often gets tricky for small corporations, exiguous liability clubs and partnerships and may be impossible for these sorts of entities. (You can consult your tax advisor for the details.)

Reason #5: Easy Upgradeability

A fifth, final think to use a sole proprietorship-you can of course later upgrade to a corporation, exiguous liability company or partnership. Specifically, you can typically turn your sole proprietorship into a partnership or corporation without tax consequences at some point in the time to come if circumstances warrant.

Accordingly, if at some point in the future, you need to bring in partners or you want to cut your legal liability by forming a corporation or exiguous liability company, you should be able to of course do so. (Ask your attorney or accountant for the details.)

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