Is a Sole Proprietorship Right for Your Side Business?
Many people dream of leaving their job and starting their own business. However, to ascertain if this dream is possible, many people will start their business as a side hustle. This means they will work their 9-5 job and then work their side business in the evenings and on weekends.
They may determine that their side hustle is not enough to pay the bills. Maybe they think they can make their business profitable enough to make it a full-time job. In either case, to make things easier come tax time, it is common for business owners to stick with a simple business structure, such as a sole proprietorship. With a sole proprietorship, you don’t need any special tax paperwork or even a different version of tax software. Everything can fit on your Schedule C form.
While using this business structure can create less work for you at first, it’s not recommended to stay with this structure as your business grows. That’s because in a sole proprietorship, the business and owner are considered to be the same thing. There is minimal protection. Even if you have just one client, your business is open to liability.
However, this is not the case with a corporation or LLC. These types of business entities separate the owner from the business, so there is some degree of protection. Therefore, if the business is sued, then the plaintiff can only go after business assets. Personal assets are not available in a business lawsuit, so your home and vehicles are protected.
On the downside, an LLC or corporation structure can be costly to maintain. While it costs just $125 to form an LLC in Florida, there are annual operating expenses to consider. Legal and accounting costs can exceed several thousand dollars per year, which can make your side hustle cost-prohibitive.
A sole proprietorship, LLC and corporation can be all treated the same in terms of taxes. Therefore, your main concern should be the liability and the amount of protection you are getting with each business structure.
However, the self-employment tax rate of 15.3% shows an income level of roughly $6,500 as the break-even point. This means that if a business is making more than $6,500 per year in profit, an LLC or corporation is preferred for more tax advantages.
Learn More About Sole Proprietorship
A sole proprietorship may be the easiest type of business, especially when it comes to taxes. While this type of business may work well at first, it offers the least amount of protection. Your personal assets are at risk, which could be detrimental if you are sued for some reason.
Protect your business with help from Orlando sole proprietorship lawyer B.F. Godfrey from Godfrey Legal. He can assess your business and help you make the right decisions that will lead to success. Schedule a consultation today. Fill out the online form or call (407) 890-0023.