It is important to understand how a sole proprietorship effects your life and your finances. A business formation lawyer can guide you through the details, but below are some issues and rewards to consider.
One attractive reward is that you keep all of the profits for yourself. However, you must pay your income taxes, your Medicare payment, and both your own share and the employer’s share of your Social Security payment. If you have employees or work with freelancers or consultants, you must complete all of the relevant paperwork and withhold your employee’s taxes.
Another concern is that there is no distinction between your personal and business income and property. If you suffer a business or personal financial loss or someone sues either you or your business, the court can use both your personal and business assets as resources to pay either personal or business debts and settlements.
Finally, if you should die, the business cannot continue as it was before your death, and it may lose value upon your death. Therefore, you should specify in advance whether the business should be closed, transferred to a new qualified owner, or sold. Estate and inheritance taxes can be significant if ownership is transferred through a will, so explore estate planning alternatives with a lawyer in business formation.
Financial considerations aside, sole proprietorships provide independence and personal satisfaction. Hours and prices may be dictated by location for brick-and-mortar businesses, but the internet gives service providers greater freedom in setting rates and work hours. You are responsible for marketing and growing your business, but credit for the growth goes to you.