New business owners always seem to be bending over the issue of incorporation. They should, or should not, integrate their new businesses. Or no, wait. Maybe an S corporation or a limited liability company makes more sense? However, this obsession with more sophisticated (and expensive) feature options is terrible. New small business owners can count on at least five good reasons to start a small business as a sole proprietor.
Facts About Independent Business
A single property is a company that has a sole owner. It is a “unique” owner in that the owner has no partner. A separate property means that a person does business on his behalf and there is only one owner. A single feature is not a corporation, does not pay corporation tax, but the person who organized the business pays personal income taxes, which makes accounting much simpler.
A sole proprietor has the power to hire any number of employees because the law makes no distinction between you, the sole proprietor and the company. The individual property also can hire independent contractors of their choice.
Compared to the incorporation or formation of a limited liability company, individual businesses are very simple. All you need to do is start. State and local governments often want you to get a business license so they can get your new business on your business tax lists. But getting a commercial license in many cases is quite easy. Check the phone book or call local offices in your state or municipality.
If you run your business as a sole proprietor, your accounting will be straightforward. If you are the only worker, you will not even have to pay. Not having to pay saves a lot of time and money. Also, you will not have to prepare a balance sheet as part of your tax return. The income and deductions of its sole proprietor will generally be reported on your tax return on a single page of a paper.
Minor children as tax shelters
If you employ your minor children in your business, a single owner offers one of the smallest shelters for small businesses out there. The amounts you pay for your minor children count as a tax deduction for your business, allowing you to save income tax and tax on work by yourself. But the amounts that your small children earn probably not be taxable for income tax or social security and Medicare taxes if they make less than the value of the standard deduction.
Ease of deductibility of health insurance
Sole proprietors can more easily deduct family health insurance. The rules are a bit difficult. The family cannot receive subsidized health insurance, for example from a previous or current employer. And you get the health insurance deduction only to the extent that the company makes a profit.
There is one last reason to consider the undervalued individual business option. With a single business, you can quickly switch to another form at a later date, and almost always with zero negative tax consequences. Also, at this point, you can decide whether the company option makes sense.