Sole-Proprietorships
At Mraz Tax Solutions, we understand that many business owners begin their journey as a sole proprietor, simple to establish, flexible, and requiring fewer formalities than other entity types. This page provides an overview of the sole-proprietorship business form, federal tax treatment, key decisions you'll face, and how our firm can assist you in handling it properly and planning for growth.
*We provide a free initial consultation with a licensed tax advisor to determine your tax needs.
How Mraz Tax Solutions Can Help Your Sole Proprietorship
Given the simplicity yet significant tax implications of operating as a sole proprietor, our firm offers tailored services to help you with:
Reviews
We review whether sole proprietorship is the appropriate structure for your business, business activities, recordkeeping practices, expense deductions, tax payment plan, and any entity structuring considerations.
Preparations
Prepare the business portion of Schedule C (Form 1040), Schedule SE, and other related forms, including estimating payments and integrating with your personal return.
Assistance
Assist with recordkeeping strategies, deductible expense tracking (home office, vehicle, depreciation), and making sure you satisfy IRS guidance for “ordinary and necessary” business expenses.
Planning
Provide guidance on transition planning when you outgrow the sole-proprietor form, such as converting to an LLC, partnership or S-corporation, where applicable.
Multistate operations and California specifics
Address multi state filing issues, California tax considerations, and filing obligations including licenses and registrations pertinent to small businesses.
Book a consultation
If you are interested in learning more about our services, schedule an appointment with one of our tax experts. Book a one-on-one phone call and learn more about how we can help you with your tax needs.
What is a Sole Proprietorship?
A sole proprietorship is a business that is owned and operated by one individual and has not been organized as a corporation or partnership. Under federal income tax law, the sole proprietor and the business are one and the same. That means the business profits and losses flow through directly to the business owner's individual tax return.
From the perspective of entity classification guidance, the Internal Revenue Service (“IRS”) lists a sole proprietor as someone who owns an unincorporated business by themselves (unless a single-member LLC elects to be treated as a corporation).
Formation & Structural Features
No formal paperwork is required at the federal level to “form” a sole proprietorship; you begin when you start doing business as an individual. Some state and local licensing, registration and permit requirements may still apply.
- Because the business and the owner are legally indistinct (for income tax purposes), there is no separate entity return for the business (in the basic form).
- If you operate as a sole proprietor using a business name, you may file a “doing business as” (DBA) registration or fictitious business name in your state/county, though this is a procedural matter not a federal tax election.
- If you are a single-member LLC and do not elect to be treated as a corporation, you will generally be treated as a disregarded entity and thus for federal tax purposes treated like a sole proprietor.
Contact us today to discuss your Sole Proprietorship strategy and begin taking advantage of professional tax guidance you can trust.
Frequently Asked Questions
If you are currently operating as a sole proprietor or considering starting a sole-proprietorship business and want to be confident in how your taxes are handled, please schedule an initial consultation with us. We will review your business activities, recordkeeping practices, expense deductions, tax payment plan, and any entity structuring considerations that may benefit you now or in the future.
Do I need to file a special form to create a sole proprietorship?
No. Federal law does not require a form to create a sole proprietorship; you begin trade or business as an individual. However, state licensing, local permits, or fictitious business name registrations may be required.
If I use my personal Social Security Number for business, is that acceptable?
Yes, many sole proprietors use their personal Social Security Number (SSN). You may also obtain an Employer Identification Number (EIN) for your business for administrative convenience, but it does not alter your tax classification as a sole proprietor unless you make a different election.
If my business has losses, can I deduct them on my personal return?
Yes, losses from your sole proprietorship generally flow through to your individual tax return via Schedule C. They may offset other income subject to limitations (such as hobby loss rules or passive activity rules) and other considerations.
At what point should I consider changing my structure to an LLC or corporation?
When your business: has multiple owners, you want liability protection, your income and tax liability grow, you face state tax or multi state obligations, or you desire more sophisticated tax planning (e.g., self-employment tax mitigation). We can help evaluate that decision relative to your facts and goals.
Why file your taxes with Mraz Tax Solutions?
We specialize in individual and small business tax returns. Whether you're an employee filing a W-2, a contractor taking part in the sharing economy filing a 1099 or a small business owner, we are here to help. We understand the importance of minimizing your tax and getting you the maximum refund you are legally entitled to. In order to do this and to prepare a complete and accurate return we take the time to get to know you and your goals.