Sole Proprietor: Small Business Owner


Protect your assets and save upwards of 9% of your total income in taxes each year!

 

Sole proprietorship is a lack of legal identity

  • There is no legal difference between an unincorporated business and its owner, even with a DBA.
  • If you are found liable in a legal dispute, your PERSONAL ASSETS CAN BE LEVIED OR SEIZED, including your house, vehicles and other valuables.
  • C-corps, S-corps provide legal separation between personal and business assets, but have stringent mandates regarding meetings, documents and procedures that must be held, kept and filed in a permanent company record.
  • In the case of a legal dispute as a corporation, if you have failed to maintain record of any of these requirements, the separate legal protection of the corporation can be jeopardized on account of incompliance with corporate regulations.

LLC’s provide asset protection with the least amount of hassle

  • LLC’s offer EQUAL PROTECTION OF PERSONAL ASSETS AS CORPORATIONS.
  • LLC’s DO NOT REQUIRE THE SAME MEETINGS, RECORDS AND PROCEDURES as a corporation. 
  • While holding meetings, keeping notes and maintaining records for a business is always a financially wise decision, LLC’s allow owners to use them as needed without fear of being incompliant.  

Sole proprietorship costs far too much in taxes

  • YOU WILL PAY A SELF-EMPLOYMENT TAX OF 15.3% OF YOUR NET INCOME EACH YEAR!  
  • Employers and employees split the 15.3% tax for social security and Medicare 50/50; however, as a sole proprietor, you are responsible for both portions.
  • This disadvantage has been labeled “self-employment tax.”

LLC’s save you on taxes

  • Traditionally, S-Corps are recommended for small business owners given that the income passed through to the owner is not subject to self-employment tax provided the owner takes a “fair and reasonable salary” which is taxed. 
  • Due to the legal concerns with corporations mentioned previously, it is more beneficial to organize an LLC and apply for treatment as an S-elected entity. 
  • This organization provides the legal protection with less hassle of an LLC with the tax incentives of an S-Corp. 
  • As a business owner, THE NET INCOME OF YOUR COMPANY WILL NOT BE SUBJECT TO SELF-EMPLOYMENT TAX as an S-elected LLC.  
  • Mentioned above however, you are required to select a “fair and reasonable salary” from which you will pay both portions of the tax for social security and Medicare (FICA). 

 Here’s an idea of the savings at stake:

SolePropChart*Values on table are estimations based on 2010 self-employment tax formulas and a “fair & reasonable salary” of 33.33% of net income.  (You are probably looking for a disclaimer here to show that these resulrs are biased; actually, these are pertty typical results.)

See table calculations with formulas.

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