When you go into business you face a road of decision making that will affect how your business operates. One such decision is whether or not to incorporate. If you chose to this route you then are faced with choosing which style of incorporation fits your business. If you choose not to incorporate which business organization will you become? The decision you make will impact how you do business and your tax obligations. The following business structures are unincorporated options.
Sole proprietorship
A sole proprietorship is the most common and simplest type of business organization. As the name suggests the business is owned by one individual. The business structure allows the owner to file taxes using a Schedule C, Profit and Loss from Business. The business owner pays taxes on his income from the business. The business is not a separate entity from the owner. The owner is responsible for all liabilities. Which means the owner could face unlimited liability if the unthinkable happens. Setting this business structure up is simple and requires no formalities. When I ran a day care out of my home I filed as a sole proprietorship. Once I decided to discontinue my business I had no obligations, no tax issues, and no complication. I filed taxes with a Schedule C as mentioned which is a simple form. Sole proprietorship is the easiest business structure to begin so if you are the sole owner you may want to choose this method. Just keep in mind that you are personally responsible for all expenses and liabilities.
Partnership
A partnership is a business structure which consists of multiple individuals sharing the profit and loss of a business. General partners have equal share of profit and loss while limited partners are limited by their investment. If you enter into a partnership with one individual then you share a 50/50 obligation on all liabilities. You file taxes separately on your individual tax returns much like a sole proprietorship. A partnership can be formed by individuals, corporations, businesses or other organizations. This method basically runs like sole proprietorship in that debt and liabilities are the personal responsibility of the partners. So like in a sole proprietorship if a partnership goes into debt or gets sued individuals could face personal losses.