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Advantages
The sole proprietorship is simple to set up because it doesn’t require you to create a controlling document. After registering or licensing your business with your state and local governments (so they can tax you appropriately), you’re free to hang out your shingle. Federal taxes are pretty easy; you just add a Schedule C – Profit or Loss from a business – to your individual Form 1040. Also, pass-through entities such as sole proprietorships will receive a 20% tax deduction under the recent tax reform for 2018.
Disadvantages
As a sole proprietor, if something goes wrong, your personal assets have no legal protection. You are personally liable for any mistakes you may make in your business, or any debts the business accrues. Banks may be reluctant to grant loans to sole proprietors, though this may not be much of an issue if, for example, you’re a consultant working out of a home office and don’t have much overhead.
Also, this may not be a suitable structure for a growing company or one that hires a lot of employees. But remember, you can always change structures if you outgrow your current one.
Deciding Factor
The level of personal risk you take on should be the deal breaker. If people in your line of work are subject to controversy or lawsuits, it may be best to check out an LLC instead.
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For more than 200 years businesses have trusted The Hartford. We can help you get the right coverage with an online quote.