Sole Proprietorship
The simplest business structure. One person owns and runs the business. There is no legal separation between you and the business, so your personal assets are on the line for business debts.
Ownership
One individual (or a married couple in some states)
Pass-Through Taxation
Yes
State Filing Required
No
Self-Employment Tax
Yes
None. You are personally liable for all business debts and lawsuits. Your home, car, and savings can be seized to pay business obligations.
Business income and expenses are reported on Schedule C, attached to your personal Form 1040. The profit is taxed at your personal income tax rates.
Self-Employment Tax
Yes. You pay self-employment tax (15.3%) on net profit, covering Social Security and Medicare.
How to Form
No formal paperwork required in most states. You may need a local business license, DBA (Doing Business As) registration if using a business name, and any required permits.
Ongoing Compliance
Minimal. Keep business records, file Schedule C annually, pay estimated quarterly taxes. Some states require annual business license renewal.
- Easiest and cheapest to start
- No state filing fees or registered agent needed
- Complete control over decisions
- Simple tax reporting on Schedule C
- Easy to dissolve
- Unlimited personal liability for debts and lawsuits
- Hard to raise capital (no stock to sell, no investors)
- Business ends if owner dies or becomes incapacitated
- May be perceived as less professional than an LLC or corporation
- Self-employment tax on all profit
Freelancers, consultants, solo service providers, and very small low-risk businesses just starting out. Once revenue grows or liability risk increases, most owners switch to an LLC.
- •Schedule C (Form 1040)
- •Schedule SE (Self-Employment Tax)
- •Form 1040-ES (Estimated Tax)
See our Tax Forms reference for details on each form.