What are the main Tax Advantages and Disadvantages of Sole Proprietorships?
The Sole proprietorships have the non-tax advantage of simplicity and a very low administrative cost, but they provide no liability protection to their owners. But, their main tax advantages and disadvantages of Sole Proprietorships are as follows;
1. There is only one level of income tax that is imposed.
2. The Sole proprietorship owner can employ his children under 18 and save on employment payroll taxes.
3. The Sole proprietorship may be able to deducti for home office expenses that ultimately will reduce the net profit of the business.
4. The Sole proprietorship owner can hire his spouse and provide medical insurance to the bonafide spouse employee and their family.
5. All net business income is subject to self-employment tax (SE).
6. Contributions to retirement plans for the owner are not a business deduction and do not reduce self-employment tax.
7. Fringe benefits for the owner are not allowed as a business expense. The owner may qualify for the self-employed health insurance deduction,