Sole Proprietorship

A sole proprietorship is a type of a business organization in which an individual operates and manages the business as the sole owner. It is the simplest and most common form of business ownership. You do not have to register your business with the state and as long as you haven't hired employees you don't have to obtain an EIN number.

There are 2 ways to name a sole proprietorship:

• Using owner's last name in the business name.

• Obtain a fictitious name from the county clerk's office.

For example: "Doe's Bakery" owned by Jane Doe will not require obtaining a fictitious name. However, "Sausalito Bakery" with the same owner will require a fictitious name. Fictitious name is filed with the county clerk and simply notifies public that the owner will be conducting business under a different name. In this case the official business name will be "Jane Doe Doing Business as Sausalito Bakery". Typically, the filing is very simple, only takes few minutes and costs less than $100. Look up your country clerks address or website and ask / search for a fictitious name registration.

Taxation

There is no separate federal income tax on sole proprietorships. The revenue and expenses are reported on the form Schedule C that's attached to personal tax return and the net income is combined with owner’s personal income and he or she pays personal income tax on it. Also, the owner is subject to roughly 14.22% self-employment tax on net income with certain limits. In most states there is no state franchise, business income or revenue tax imposed on sole proprietorships.

For Example:

Doe's Bakery had $250,000 in revenue, $150,000 in expenses and $100,000 in net income. $100,000 net income will be subject to $14,130 self-employment tax and $9,752 personal income tax plus state income tax if applicable.

Because of this, there is no special procedure for the owner to pay him/herself or to invest money in the business. Owners can make non tax deductible withdrawals and nontaxable deposits.