Five Reasons to Use a Sole Proprietorship

Can I Deduct Cobra Health Insurance Premiums - Five Reasons to Use a Sole Proprietorship

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Getting ready to start your own business? You've got a bunch of different choices as to the entity type, along with forming a corporation or a small liability company. But don't make the mistake the over-looking the sole proprietorship option. For new entrepreneurs starting a small business, a sole proprietorship offers five big benefits.

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Can I Deduct Cobra Health Insurance Premiums

Reason #1: Setup Simplicity

Here's a first fancy to start your new enterprise as a sole proprietorship: It's easy.

In fact, you beyond doubt don't need to do anything to "start" your new enterprise as a sole proprietorship. By starting your business, you originate your sole proprietorship. Period.

Note that state and local governments typically do want to license businesses, however, along with businesses operating as sole proprietorships. Do check out the local phone book or quest your state government's web site for licensing facts connected to starting a enterprise like yours.

Reason #2: Easy Tax Accounting

Easy tax accounting counts as a second fancy to use a sole proprietorship.

As compared to corporations and partnerships, a sole proprietorship keeps your tax accounting simple. A sole proprietorship reports its income and deductions to the federal and state government using a one-page tax form, a schedule C. The schedule C tax form, ready from the http://www.irs.gov web site, is essentially a simplified behalf and loss statement.

Note that many small corporations, small liability fellowships and partnerships need to comprise balance sheets as part of their tax returns. And balance sheets greatly complicate a small business's accounting and the tax return.

Reason #3: Hiring the Proprietor's Children

A third fancy to think the sole proprietorship option: A sole proprietor who wants to hire his or her minor children often saves a bundle on taxes. Here's why: The sole proprietor who hires his or her minor children (under the age of 18) can deduct the amounts paid to the kids as wages. Yet the wages typically aren't dutible to the kids. (The actual rule is that the wages aren't dutible as long as the children make less than the appropriate deduction amount-roughly ,000 a year.)

And it gets even better: These wages typically don't ratchet up the business's payroll taxes because wages paid to minor children aren't branch to group Security, Medicare and Federal Unemployment taxes.

Note: A flourishing sole proprietor with kids who help out in the enterprise could beyond doubt save in the middle of ,000 and

,000 a year per child by using this tax loophole.

Reason #4: Easier Self-employed health insurance Deductions

A fourth fancy to use a sole proprietorship concerns the self-employed health insurance deduction.

A sole proprietor can ordinarily beyond doubt use his or her health insurance as an income tax deduction.

Furthermore, with a bit of extra paperwork, in some situations, a sole proprietor employing a spouse may be able to deduct all medical expenses as enterprise tax deduction.

To deduct all of the proprietor's family's medical expenses as a enterprise tax deduction, the sole proprietor needs to set up something called a healthcare repayment arrangement. (Get your accountant's help if you want to do this-the setup process can be a bit tricky and traps exist for the unwary.)

Note: Corporations, partnerships and small liability fellowships can deduct self-employed health insurance, too.

But taking the deduction often gets tricky for small corporations, small liability fellowships and partnerships and may be impossible for these sorts of entities. (You can consult your tax counselor for the details.)

Reason #5: Easy Upgradeability

A fifth, final fancy to use a sole proprietorship-you can beyond doubt later upgrade to a corporation, small liability enterprise or partnership. Specifically, you can typically turn your sole proprietorship into a partnership or corporation without tax consequences at some point in the hereafter if circumstances warrant.

Accordingly, if at some point in the future, you need to bring in partners or you want to sacrifice your legal liability by forming a corporation or small liability company, you should be able to beyond doubt do so. (Ask your attorney or accountant for the details.)

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