Chicken Soup For The Sole Proprietor … by neil smith

1/14/09

If you are like most people just starting down the path of going into business for yourself, you likely have some questions about how to structure things to legally conduct your business. Should you form a partnership, a corporation or a sole proprietorship? The answer to this question is not the same for everyone. It really depends upon your own unique situation and the business you intend to conduct. This article focuses on the ins and outs of a sole proprietorship.

It may surprise you to know that you are already a sole proprietor and don’t need to do anything special at all in order to conduct business under this status! It really is this simple. Just start conducting your business and you are your company’s “sole proprietor.”

Hiring others -

If you need to hire others in order to service your clients, if you expect to pay them individually less than $600 over the course of a calendar year, you can write your payments to them off your taxes without needing any special forms, just some written proof you paid them (a receipt or simply pay them with checks or money orders). If you pay them in excess of $600 a year, you simply have them fill out a w9 tax form (independent contractor) and then you must prepare a form 1099 for them each year including a total of everything you have paid them.

Getting paid -

Clients will usually need to make their payments payable directly to you and not your business name, unless you have filed for a fictitious business name with your local government and have opened a business bank account under your business name which typically carry additional fees and charges.

Taxes -

As far as tax preparation goes, I go to a professional CPA (Certified Public Accountant (NOT H&R BLOCK!!!! I have had MANY nightmare experiences with them!) and do a form 1040 along with a schedule C. I do enter all of my expenditures and income for the year into a spreadsheet and claim a great number of tax write-offs for equipment, travel, lodging, home office space (usually needs to be a dedicated room in your home), agent fees / commissions, automobile maintenance and mileage and the musicians I hire. When I hire musicians, as previously stated, I simply get them to fill out a w9 form which I keep in my files (contains their social security number and mailing address along with signature) and then prepare 1099 forms each January for them which contains the total they were paid in the preceding year.

The Down Sides -

Some of the down sides of having a sole proprietorship are that you are not able sell any interest in your business should you desire to do so for the purpose of raising capital. You are also personally responsible for your company’s debts and your personal credit rating can impact your ability to receive business financing. If your company should happen to be sued, it means that you are personally being sued and any asset you own that would not be covered under bankruptcy protection is fair game for lien claims including assets belonging to a spouse! These are some serious considerations and should be weighed carefully.

There is no blanket-answer to how you should structure your business as each individual’s situation is unique, but hopefully this article has helped you better understand what a sole proprietorship is and will help you be just a touch more armed for battle in the wild, wild business frontier! I would love to know your thoughts. Please visit my website at http://www.letsgetahead.com for more great articles like this one!

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