Being a Sole Proprietor Costs You More!
Life is not fair.
Sole proprietors pay more taxes than other self-employed people.
Here’s an example…Let’s say there are two self employed people with the same amount of income and the same amount of expenses. The only difference between the two is the way they choose to report their business to the IRS.
Business owner A is classified as an s-corporation. This means he filed his business with the secretary of state to become a corporation, and then filed a form 2553 with the IRS to get “S-corporation” status.
Business owner B did nothing. He just started making moneywith his business and did not file any legal paperwork to change his business entity, so he is a sole proprietor.
Let’s say both businesses made a profit…meaning they had more income than expenses.
Business Owner A would pay regular income tax on the profit and that’s it.
Business Owner B would pay regular income tax on the profit and an additional 15.3% self employment tax on the income.
The only difference is the way each business owner chose to report their income.
Why would you pay Uncle Sam more than you have to?
Another drawback to being a sole proprietor is the liability issue. As a sole proprietor, you and your business are one. That means if there are any legal problems stemming from your business, you as the owner are totally liable. This means an unsatisfield customer could sue you and take everything you own! That includes your home, cars, savings, etc.
Learn more about choosing the correct business entity in chapter 3 of my book, “Pay Yourself Instead ofUncle Sam!” Juat click the link below to order now!
