Does a sole proprietorship have tax benefits for me?

There are tax advantages or

There are tax advantages or benefit to a sole proprietorship, as compared to a traditional corporation. Since a corporation is its own legal entity—a person, if you would—a traditional corporation, often called a “C-corp,” pays taxes on its income, the same as any other person would. Then when money is paid to the owners, whether as dividends to shareholders or as salary to owners who are also employees of the corporation, they pay taxes on their income, too. Hence “double taxation”: taxes are paid at the corporate level, then again at the individual level.

However, despite those tax benefits, I don’t usually recommend sole proprietorships. There are other business structures that let you avoid double taxation: S-corps (a special kind or subset of corporations) and LLCs, or limited liability companies, as long as they choose (“elect”) to not be treated like C-corps.  Both these entities have “pass through” taxation—profits and losses “pass through” the company directly to the owner(s), where they become part of his, her, or their tax return(s). As such, owners of LLCs and S-corps only get taxed once, not effectively twice, like C-corp owners.

At the same time, though, those other entities afford their owners the protection of limited liability from debts and lawsuits (that’s what “limited liability company” means, after all!). They therefore help to protect the owner’s personal assets from creditors. Sole proprietors, however, have no such protection; they and their business are one. Therefore, it’s much safer to conduct your business through a S-corp or LLC.

(On a non-legal, non-financial note, many people also consider it looks more “professional” to have a separate business—it may help market your business to prospective clients.)