How is a sole proprietorship taxed?
Even if a sole proprietor obtains an EIN for business, the proprietorship is not a separate taxpayer. All of the income and expenses are reported on Schedule C of the owner’s individual federal income tax return and on Form 1 with the state. Although the owner of a sole proprietorship is not an employee, he or she is required to pay self employment tax and to make periodic estimated tax payments on income from the sole proprietorship. The sale of goods or services may be subject to sales tax, which must be paid to the state. If the proprietorship has employees in addition to the owner, the proprietorship must pay federal employment tax (FUTA), the employer’s share of Social Security, and the employer’s share of Medicaid. The proprietor also must withhold income taxes, the employee’s share of Social Security, and Medicaid from the employee’s income. The amounts withheld must be deposited with the government. Is a sole proprietor protected from liabilities of the business? Since a sole p
