Sole Proprietor
An individual who owns and operates an unincorporated business by themselves. Business income and expenses are reported on Schedule C of the personal tax return.
A sole proprietorship is the simplest business structure. If you are self-employed, freelancing, or running a one-person business without forming an LLC or corporation, you are automatically a sole proprietor. There is no separate legal entity — you and your business are one and the same for legal and tax purposes.
Business income and deductible expenses are reported on Schedule C (Profit or Loss from Business), which is filed with your personal Form 1040. Your net profit is subject to both federal income tax and self-employment tax (15.3%). You may also qualify for the Qualified Business Income (QBI) deduction of up to 20% of net profit.
The main advantages of sole proprietorship are simplicity and low cost — there is no formal registration or annual filing required in most states beyond a basic business license. The disadvantage is unlimited personal liability, meaning your personal assets are at risk for business debts and lawsuits. Many sole proprietors eventually form an LLC for liability protection while keeping the same tax treatment.
Related Terms
Schedule C
The IRS form (Schedule C of Form 1040) used by sole proprietors and single-member LLCs to report business income and expenses. The net profit flows to your personal tax return.
Self-Employment Tax
The combined Social Security (12.4%) and Medicare (2.9%) tax paid by self-employed individuals — effectively both the employee and employer shares of FICA, totaling 15.3%.
Qualified Business Income (QBI) Deduction
A deduction of up to 20% of qualified business income from pass-through entities like sole proprietorships, partnerships, and S corporations, available under Section 199A.
Quarterly Estimated Tax
Tax payments made four times a year by self-employed individuals and others with income not subject to withholding. Due dates are April 15, June 15, September 15, and January 15.