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Sole Proprietorships

A Sole Proprietorship is the most common form of business organization.  In general, sole proprietorships in Virginia can be formed with no formalities and it offers complete control to the owner.   However, it will generally be necessary to obtain one or more local business licenses from the cities or counties in which you operate and, in some cases, state licenses as well.  Additionally, there may be a requirement to register the business with the Clerk of the Court for the city of county in which you operate if your are conducting business under a fictitious name (Doing Business As (DBA)).

It is any unincorporated business owned entirely by one individual.  Sole Proprietors can operate any kind of business.  It must be a business, not an investment or hobby.  It can be full or part-time work.  This includes operating, among others, a:

  • Shop or retail trade business,
  • Home-based business and/or a
  • One-person consulting firm

Generally, sole proprietors file Schedule C or C-EZ, Profits or Loss from Business, with their Form 1040.  Sole proprietor farmers file Schedule F, Profit or Loss from Farming.  The net business income or loss is combined with other income and deductions and is taxed at individual rates on the personal tax return.

self-employment-taxSole proprietors must also pay Self-Employment Tax on the net income reported on the Schedule C or F and up to one-half of the Self-Employment Tax can be deducted on the 1040.

Sole proprietors do not have taxes withheld from their business income, so a business owner will generally need to make quarterly estimated tax payments if the company is expected to make a profit.