Tax Benefits of a Sole Proprietorship

Sole proprietorships benefit from what is known as pass-through taxation. This means that the business itself does not pay taxes separately; instead, the business profits and losses “pass through” to the owner’s personal tax return. The income generated by the sole proprietorship is taxed at the individual’s personal tax rate.

One of the main tax advantages of running a sole proprietorship is that you can deduct the cost of health insurance for yourself, your spouse and any dependents. You can take this deduction even if you don’t itemize deductions on your tax return.

Tax Reporting and Refunds for Sole Proprietorships

Tax reporting for a sole proprietorship is documented on a Schedule C tax form. The forms must be completed in the same period as the sole proprietor’s personal income tax returns to file the general income tax return. Therefore, all taxes must be filed by the 15th of April.

Whether or not a business can get a tax refund depends on how it’s structured, and how much was paid in estimated taxes. A business’s best chance of getting a refund is overpaying quarterly estimated payments. By paying more than what you believe you owe, you increase your chances of receiving a refund once you file your return.