Sole proprietorship
No entity, no shield: the business is its owner, reported on Schedule C with self-employment tax on Schedule SE.
A sole proprietorship is what you are the day you start selling something on your own without forming anything. There is no entity: the business is you. Its profit goes on your own return on Schedule C, and you owe self-employment tax on it on Schedule SE.
Because there is no entity, there is no shield. A customer's claim or a supplier's unpaid invoice is a claim against you personally, and so are your house and your savings.
Sole proprietorship
- Good at
- Nothing to form and nothing to file with a state to exist.
- One return, your own.
- Watch for
- Unlimited personal liability for the business's debts.
- Can't sell stock, so it can't raise equity.
- Self-employment tax on all of the profit.
- Best for
- Testing an idea with low risk and no outside money.
Where this lesson's rules come from
The sources behind this lesson's requirements, by kind. Background reading explains; it is never the authority for a rule. Anything marked as a convention is ours, not the rule-maker's.
- IRS guidance
- IRS, Sole proprietorships (opens in a new tab)Sole proprietorships — Schedule C, Schedule SE and Form 1040-ESFree to read
- Federal agency guidance
- SBA, Choose a business structure — Sole proprietorship, Corporation (opens in a new tab)Personal liability without an entity, and why corporations raise money more easilyFree to read
- Official form
- Schedule C (Form 1040) (2025) (opens in a new tab)Schedule C, Profit or Loss From Business (PDF)PDF · Free to read
- Background reading — not an authority
- Wikipedia, “Sole proprietorship” (opens in a new tab)Sole proprietorshipFree to read
The words this page teaches
Each links to its glossary definition, which also names the authority behind it and the components that render it.
- Sole proprietorshipA business one individual owns without forming an entity. Its profit is reported on the owner's Schedule C with self-employment tax on Schedule SE, and the owner is personally liable for its debts
- Self-employment taxSocial Security and Medicare on net earnings from self-employment — 92.35% of net profit, taxed at 12.4% up to the year's wage base and 2.9% on all of it — owed once net earnings reach $400, with half deducted from income. Sole proprietors and general partners pay it on Schedule SE