Last week on the show, a caller was asking a question about whether a sole proprietor (SP) could have employees -- and I said no. Ooops! Honestly, I don't know what I was thinking since I know SPs certainly can have an unlimited number of employees. Actually, I think I indexed quickly to the point I wanted to make that SPs may have no employees (since the SP isn't considered an employee themself). Anyway, after my CPA Ken Anders, a few listeners -- and my wife -- brought it to my attention, I thought I'd give you a brief overview this week on sole proprietors ... and a few pros/cons of this type of business ownership.

First, an overview:

• Sole proprietorship is an unincorporated business owned by one person. Therefore, a spouse cannot participate in your business as an owner.
• The law makes no distinction between you (the SP) and your business. Virtually all legal and tax consequences flow out of this fact.
• The SP can have an unlimited # of employees or independent contractors.
• You may conduct business in your own name or an assumed name (Sally Jones DBA Sally's Creations).

Pros:

1. 1. You can avoid double taxation since all your business income is treated as your personal income. You won't pay both corporate and personal taxes.
2. 2. You can deduct your business losses to the extent of your total income from all sources (including your spouse, if you file a joint return). If your business has large start-up costs, you may receive a larger refund (from taxes already withheld from other jobs) due to a loss from your business.
3. 3. Tax returns are less complicated (Schedule C).

1. 1. The SP is personally liable for all the debts of his/her business
2. 2. You may pay higher income taxes. By incorporating, you may be able to reduce your tax rate through deductions and in the way you take income out of the business.
3. 3. As a SP, you may not take any tax deduction for your life or health insurance.
4. 4. Contribution limits into tax-free/tax-deferred retirement plans is much lower for SPs.