What Tax Forms Do Sole Proprietors Need?

One of the first decisions that a person must make when starting a business is the type of legal structure he or she wants to establish. This decision will be based on a variety of factors, including the nature of the business, the number of owners, the amount of liability protection the owner desires, and tax obligations. As with most things in life, each type of business structure comes with various advantages and disadvantages.

The tax treatment of a particular business structure is generally one of the deciding factors when people are trying to choose a legal structure. For example, corporations -- C corporations, to be exact -- are subject to double taxation, meaning the profits are taxed at the corporate level and dividends are also taxed once the shareholders receive them. A sole proprietorship, on the other hand, enjoys pass-through taxation, meaning that the profits are taxed on the owner's personal tax return.

This article provides you with the forms that most sole proprietors will need to pay their federal taxes.

What Is a Sole Proprietorship?

A sole proprietorship is a type of business that is owned by one individual (if there is more than one owner, a person can form a general partnership). A sole proprietor is not required to register with the state nor are there any formal requirements to create or maintain a sole proprietorship, which makes it the easiest and least expensive type of business structure. Another benefit of a sole proprietorship is that the owner is not required to file separate taxes for the business. More specifically, a sole proprietor simply includes the income and expenses of the business on his or her personal tax return. It's important to mention that while this is the simplest type of business structure, it does have drawbacks with the biggest one being that the sole proprietor is not shielded from personal liability for business debts or legal judgments against the business.

Tax Forms for Sole Proprietors

The following chart provides information to help you determine some of the forms that you may be required to file if you are a sole proprietor.

Taxes you may be liable for:

Use Form:

Income Tax

1040 and Schedule C or C-EZ (Schedule F for farm businesses)

Self-Employment Tax

1040 and Schedule SE

Estimated Tax

1040-ES

Employment Taxes

  • Social security and Medicare taxes and income tax withholding
  • Federal unemployment (FUTA) tax
  • Depositing employment taxes

 

Excise Taxes

Refer to the Excise Tax webpage on the IRS website.

Please remember that this chart is only meant to be a guide, and only refers to possible federal taxes that sole proprietors may be responsible for. You will most likely also have state, city, and/or county tax obligations as well.

Free Initial Review of Your Sole Proprietorship Issues

From dealing with exposure to personal liability to having to calculate your estimated taxes, there are a number of factors to consider when running your business. Fortunately, there are experienced tax attorneys who can not only advise you on business strategies but also help you resolve many of the issues your business faces on a daily basis. Speak with an attorney near you today for a free initial review of your tax situation.

Next Steps

Contact a qualified business organizations attorney to help you choose the best formation for your business.

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