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What’s the advantage of starting your business as a sole proprietorship?

The biggest reason that most people run their business as a sole proprietor is because it’s the default treatment from the IRS if you don’t elect to anything specifically. Sole proprietorship is the catch-all corporate classification for every business owner that goes into business without any big plans in place. You can be treated as a sole proprietor by the IRS as any individual running a business without the benefit of any formal corporate structure or with the legal protection of an LLC.

There really aren’t a ton of benefits to recommend the sole proprietor route besides the fact that it takes no effort to setup. You can start running a business tomorrow as an individual, and by default, you would be a sole proprietor. Exciting, right? Even if you did create an LLC to take advantage of the legal protections that you get by limiting personal liability in the course of running a business, you’re going to be taxed by default as a sole proprietor.

Other business options

More complicated corporate structures and sophisticated tax treatments take more time to setup, and if you aren’t making a lot of money right off the bat, the extra time and cost might not be worth it. Not being taxed as a sole proprietor will mean more expensive filing fees, running payroll, and it will be more expensive to have your taxes done by a CPA. The other corporate structure options besides forming an LLC are electing to be taxed as a S Corp or filing as a C Corp. We have a blog post talking about the benefits of filing as a S Corp. Go check it out!

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