Sole Proprietorship explained simply – Setting up a sole proprietorship is one of the easiest and most cost-effective ways for entrepreneurs in the USA to start their business. Everything you need to know about setting up a sole proprietorship, its advantages, disadvantages and tax aspects. Setting up a US company? Learn more about US legal forms here.
Does it make sense to set up a sole proprietorship in the USA?
Einzelunternehmen gründen – sinnvoll oder nicht?
The formation of a sole proprietorship is a common form of business in the USA that many entrepreneurs choose as their first step into self-employment. There are certain steps to follow when setting up a sole proprietorship, including
Foundation without formal registration
In contrast to other forms of business, setting up a sole proprietorship is often straightforward and does not require formal registration with the state. In many cases, all that is required is a business registration, which can vary from state to state.
Minimum capital: No specific requirements
There are generally no specific minimum capital requirements for founding a sole proprietorship. Entrepreneurs can start with minimal financial resources, which makes the foundation particularly attractive.
Tax identification
Sole proprietors must register with the IRS as self-employed to obtain a tax identification number. It is important to be aware of local sales tax requirements and other legal requirements.
Foundation costs in detail
The costs of setting up a sole proprietorship are generally low. Typical costs are
Business registration: between 10 and 100 USD
Notary fees: if required
Insurance costs: vary depending on the industry
My recommendation for the first 10 properties
For the first two to ten properties, an LLC (see GmbH in Germany) is best suited to minimize liability risks and at the same time take advantage of tax benefits. The LLC limits the personal liability of the owners, while profits and losses are attributed directly to the shareholders, which avoids double taxation. In comparison, a Limited Partnership (see KG) offers more flexibility in terms of passive participation, but the general partner bears full liability. A general partnership (see OHG) involves higher risks due to unlimited liability.
US-Firmengründung speziell für Tax-Lien-Investoren
US-Firmengründung speziell für Tax-Lien-Investoren. Dieses exklusive Paket wurde speziell für deutschsprachige Tax-Lien-Investoren entwickelt und enthält alles Wichtige, was ein Investor benötigt, um seine Tax-Lien-Investments erfolgreich umzusetzen:
Advantages and disadvantages of a sole proprietorship
Here are the most important advantages and disadvantages of sole proprietorship at a glance:
3 advantages at a glance
Simple foundation and administration
Full control over the business
Tax advantages
The main advantages of a sole proprietorship are the ease of incorporation and administration, as there are no complex legal requirements. Entrepreneurs have full control over all decisions and profits, which are passed on directly to them without incurring double taxation.
3 “Disadvantages” at a glance
Unlimited personal liability
Difficulties in raising capital
Limited service life
A major disadvantage of a Sole Proprietorship is the unlimited personal liability, which means that personal assets are at risk in the event of debts or legal problems. Raising capital can also be difficult, as banks and investors often prefer a company structure with limited liability.
Taxes for a sole proprietorship in the USA
Sole Proprietorships are subject to pass-through taxation, which means that the profits and losses of the business are transferred to the owner’s personal tax return. More on this topic here: Taxes USA.
Important tax aspects
Federal income tax
Self-employment tax
Deductions and tax benefits
Sole proprietors must pay tax on their profits as part of their personal tax return. In addition, they are subject to self-employment tax, which is used to fund Social Security and Medicare programs. There are various deductions that can be used to reduce the tax burden, including business expenses.
Save taxes with a sole proprietorship
Sole traders can reduce their tax burden through clever bookkeeping and tax planning. It is important to document all business expenses in order to benefit from deductions.
FAQ on Sole Proprietorship
What are the main advantages of a sole proprietorship?
The main advantages are the ease of incorporation, full control over the business and the opportunity to benefit from tax advantages.
How much does it cost to set up a sole proprietorship?
The start-up costs vary, but are generally between USD 10 and USD 100 for business registration.
Founding a sole proprietorship for entrepreneurs
Setting up a sole proprietorship can be a smart decision, especially for entrepreneurs who want to get started quickly and cost-effectively.
Sole proprietorships offer flexibility and ease of management, but come with certain risks that should be considered.
Conclusion
Sole Proprietorship is an accessible business form that can offer significant benefits to many entrepreneurs in the United States. If you are thinking about starting a sole proprietorship, it is advisable to learn about the specific requirements of your state and possibly consult a professional to make the best decisions for your business.
Legal forms USA: Foundation & real estate
What types of company are there? If you want to set up your first US company, choosing the legal form is one of the first steps in the company formation process. Whether you want to set up a special real estate company or a start-up, we have summarized all types of companies in the USA for you here – with extra tips for real estate investments, of course.
For the first two to ten properties, an LLC (see GmbH in Germany) is best suited to minimize liability risks and at the same time take advantage of tax benefits. The LLC limits the personal liability of the owners, while profits and losses are attributed directly to the shareholders, which avoids double taxation. In comparison, a Limited Partnership (see KG) offers more flexibility in terms of passive participation, but the general partner bears full liability. A general partnership (see OHG) involves higher risks due to unlimited liability.
