Sole Proprietorship
The default structure for solo businesses. Free to start, simple to operate, and it puts everything you own at risk.
What It Is
If you start working for yourself without forming any legal entity, you are automatically a sole proprietor. There's nothing to file. No paperwork. You use your Social Security Number for tax purposes. You report business income on Schedule C of your personal tax return.
A DBA ("doing business as") lets you operate under a trade name, but it doesn't create a separate legal entity. "Sarah's Design Studio" is still Sarah personally.
Costs
State registration fee
No registration required to be a sole prop
Federal EIN
Optional, but free from IRS. Useful for banking.
DBA filing
If you want to operate under a business name
Business bank account
Optional but strongly recommended
Accounting / bookkeeping
Self-manage or hire a bookkeeper
The Unlimited Liability Problem
You and your business are legally the same entity. Business debts are your debts. A lawsuit against your business is a lawsuit against you. There is no wall between your business checking account and your home equity.
This is fine if you have nothing to protect. It becomes a serious problem once you have a mortgage, savings, a 401(k), or anything else worth keeping.
Taxes as a Sole Proprietor
Net profit is subject to self-employment tax (15.3% up to $168,600 in 2024, 2.9% above that) plus federal and state income tax. You can deduct business expenses including home office, equipment, health insurance, and half of your SE tax.
Filing is simple: Schedule C attached to Form 1040. No separate business return required.