# Sole proprietorship

> No entity, no shield: the business is its owner, reported on Schedule C with self-employment tax on Schedule SE.

Source: https://lopifi.com/learn/business-entity-types-explained/sole-proprietorship
Part of: Lopifi — US GAAP books on autopilot, checked by a CPA (https://lopifi.com)

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**What is a sole proprietorship and how is it taxed?** No entity, no shield: the business is its owner, reported on Schedule C with self-employment tax on Schedule SE.

A [sole proprietorship](https://lopifi.com/md/glossary/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](https://lopifi.com/md/glossary/self-employment-tax) on it on Schedule SE.

> “A sole proprietor is someone who owns an unincorporated business by themselves.”

— [IRS, Sole proprietorships](https://www.irs.gov/businesses/small-businesses-self-employed/sole-proprietorships), Sole proprietorships — Schedule C, Schedule SE and Form 1040-ES

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.

> “This means your business assets and liabilities are not separate from your personal assets and liabilities. You can be held personally liable for the debts and obligations of the business. … Corporations have an advantage when it comes to raising capital because they can raise funds through the sale of stock, which can also be a benefit in attracting employees.”

— [SBA, Choose a business structure — Sole proprietorship, Corporation](https://www.sba.gov/business-guide/launch-your-business/choose-business-structure), Personal liability without an entity, and why corporations raise money more easily

| What | Form | Notes |
| --- | --- | --- |
| Profit or loss | Schedule C (Form 1040) | With your own return |
| Self-employment tax | Schedule SE (Form 1040) | 15.3% on net earnings, from $400 |
| Estimated tax | Form 1040-ES | Quarterly, because nobody withholds from you |

What a sole proprietor files.

**Sole proprietorship**
- Pro: Nothing to form and nothing to file with a state to exist.
- Pro: One return, your own.
- Con: Unlimited personal liability for the business's debts.
- Con: Can't sell stock, so it can't raise equity.
- Con: Self-employment tax on all of the profit.
- Best for: Testing an idea with low risk and no outside money.

A sole proprietorship, honestly.

**Use case — The freelancer who never formed anything.** A designer takes her first two freelance clients while employed elsewhere. She is a sole proprietor from the first invoice. Her clients send her a Form W-9 request, and she gives them her own taxpayer number. If the work grows or carries risk, a single-member LLC changes the liability picture without changing her federal return.

## Where this page's rules come from

- [IRS, Sole proprietorships](https://www.irs.gov/businesses/small-businesses-self-employed/sole-proprietorships) — Sole proprietorships — Schedule C, Schedule SE and Form 1040-ES (irs)
- [SBA, Choose a business structure — Sole proprietorship, Corporation](https://www.sba.gov/business-guide/launch-your-business/choose-business-structure) — Personal liability without an entity, and why corporations raise money more easily (agency)
- [Schedule C (Form 1040) (2025)](https://www.irs.gov/pub/irs-pdf/f1040sc.pdf) (PDF) — Schedule C, Profit or Loss From Business (PDF) (form)
- [Wikipedia, “Sole proprietorship”](https://en.wikipedia.org/wiki/Sole_proprietorship) — Sole proprietorship (reference)

## Read further

- https://lopifi.com/md/journal-entries/owners-draw

- **Track:** [Entity types](https://lopifi.com/md/learn/entities)
- **Part of:** [The entity menu](https://lopifi.com/md/learn/business-entity-types-explained) — 4 min
- **Terms taught:** [Sole proprietorship](https://lopifi.com/md/glossary/sole-proprietorship), [Self-employment tax](https://lopifi.com/md/glossary/self-employment-tax)
- **Previous:** [The entity menu](https://lopifi.com/md/learn/business-entity-types-explained)
- **Next:** [General partnership](https://lopifi.com/md/learn/business-entity-types-explained/general-partnership)
- **The course:** https://lopifi.com/md/learn