Kelan Roy CPA Form 1040 Schedule C Businesses

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Schedule C Form 1040 Businesses - Sole Proprietorships

Overview
The sole proprietorship is the simplest form of business organization and also the easiest to create for small businesses. The sole proprietorship is not considered a separate taxable entity apart from its owner and often operates in the owners name or under a "doing business as" (DBA) name. Income and expenses of the business are reported on schedule C of the individuals Form 1040 income tax return. The downside to sole proprietorships is that the business owner is personally liable for the ALL the debts and obligations of the business. Although, depending on the nature of your business activities, insurance coverage may provide a good substitute for more complicated business entity structures.

Formation of a Sole Proprietorship
The start up cost of a sole proprietorship is minimal and unlike corporations, LLCs, etc. there are limited legal formalities required. Often start up costs are limited to registering a DBA assumed name with the appropriate county agency.

Tax Return Filings
Sole proprietorships have the simplest form of tax filing obligation. The sole proprietorship is not considered a separate legal entity apart from its owner. For income tax reporting purposes, income and expenses of your business are reported on schedule C of your personal Form 1040 income tax return. If you have no employees, you can pay your federal, social security and medicare taxes (due to self-employment) quarterly through estimated income tax payments. If you will have employees, you will need to request an employer identification number (EIN) from the IRS and prepare payroll tax returns.

Personal Liability
Sole proprietorships do not enjoy any asset protection from debts or judgments against the business. The owner bares unlimited personal liability for the activities of the company or “agents” working on their behalf. Creditors, vendors etc. are able to reach non-business personal assets in the case of a lawsuit or other judgment. Additionally, if an owner is married, the business owner also puts at risk any community property assets.

Management of the Business
The owner has total management and control over the business. You will note that the price for this control is that the owner is at risk for personal liability incurred through the acts of the owner’s agents or employees. The owner may sell, close or partner with other businesses without approval from shareholders or boards of directors. If you wish to bring in other owners or partners into the business, a change in entity will be required.

Retirement Plans
Sole proprietorships are eligible to participate in Simplified Employee Pensions (SEP), SIMPLE IRAs, Keogh plans or a Regular Individual Retirement Accounts.

Why Choose a Sole Proprietorship?
Simplicity and low start up costs. All business activities are accounted for on schedule C of your personal income tax return. If the business will engage in “risky” activities or you desire liability protection a LLC may provide a better alternative.

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CONTACT INFORMATION:

Kelan Roy, CPA MT

Kelan@Kelan.net

Serving individuals and small-to-medium sized businesses with a range

of tax return preparation, tax planning and consulting services.

Dallas - Fort Worth Texas