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A sole proprietorship is one of the most popular types of business structure—it has a lot of upsides, but it’s important to know the downsides as well.
When you are starting a business and need to decide what structure is right for you, there are many different options available. One of the most popular types of businesses is the sole proprietorship. This type of business is very easy to set up, but there are some pros and cons that you should know about before choosing which is best for you.
Easy to Set Up
Starting a sole proprietorship is much easier than starting other types of businesses because you will not need to worry about paperwork or filing things with the IRS just to start your business. You might still need to receive a license or something similar, but you do not need to worry about the same paperwork that you would if you were starting a partnership. Because they are easy to set up, they are also much more affordable.
No Double Taxation
When you operate a sole proprietorship, you will not need to pay taxes on business profits like you would with other business structures. Instead, your business income will be claimed on your personal taxes and taxed at your income tax rate. For this reason, it is often much easier to file taxes. Working with The Harding Group makes things even easier.
Don’t Worry About Annual Reporting
Outside of filing your taxes and staying up-to-date with any licensing that you need, you do not need to worry about annual reporting when you are a sole proprietors. LLCs and S-corporations, however, do need to file annual reports. By avoiding this step, you will save time and money and have one less thing to worry about.
No Need for Rigid Business Structure
Depending on the formation that you choose for your business, there are some formal expectations that you might be expected to abide by. For example, LLCs have to have annual meetings. During these meetings, you must take minutes and return them. When you are a sole proprietor, all of these elements of a traditional business structure are not required.
The Cons of a Sole Proprietorship
While there are many benefits of starting a sole proprietorship, there can be some downsides, including:
- Unlimited liability and personal responsibility for business debts
- No way to easily pass on your business
- Challenges getting funding
- Inability to assume business debt
Make Starting a Sole Proprietorship Easy with The Harding Group
Unlike other accounting firms, The Harding Group will never charge you for consultations and strive for open communication with our clients. We serve clients in Annapolis, Anne Arundel County, Baltimore, Severna Park, and Columbia. If you are ready to take the stress out of tax time as a small business owner, contact us online or give us a call at (410) 573-9991 for a free consultation. Follow us on Facebook, Twitter, YouTube, and LinkedIn for more tax tips.