When starting a business one of the first questions you might ask after putting together your business plan is “what type of business structure should I go with?” I will be having a series of posts that will go over some of the most common tax statuses for business entities that I see small business owners choose.

I’ll cover a few basic tax implications to provide some perspective. I’d recommend researching the legal ramifications of each form of business or reach out to an attorney for at least some basic information on personal liability risks. It’s good to think long term when selecting a business entity structure as it can be difficult to change. The first post will cover a Sole Proprietorship.

Sole Proprietor

This option is easy to form when there is one owner and gives the owner complete control over the business. A business is automatically considered a sole proprietorship if its conducting business activities and hasn’t registered as any other kind of business. You may still need to license your business locally.

I’d recommend researching the legal ramifications of this form of business or reach out to an attorney for at least some basic information on personal liability risks. From a tax perspective the business is filed on your personal tax return for Federal, State, and Local filings. Usually you will see this business activity filed on a Schedule C – Profit or Loss from Business on your 1040. To pay yourself you can take draws from the business as needed.

The next post will be about partnerships.