The Rise of Sole Proprietorships, LLCs, and S-Corporations

The Tax Foundation has an interesting article on pass-through businesses, where the business income “passed-through” to the individual income tax return of the business owner. Pass-through businesses include sole-proprietorships, partnerships, S-corporations, and LLCs designated to be treated as sole-prop/S-corp/partnerships for tax purposes. These usually represent small businesses started by an individual, couple, or very small group of people.

You may be surprised to know that 9 out of every 10 companies in the US are pass-through businesses. These aren’t just dinky lemonade stands, either. Pass-through businesses combined earn over half of all business income, and they employ the majority of the private-sector workforce.

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The ranks of solo entrepreneurs are growing. If this path sounds attractive to you, you won’t be alone! Being an entrepreneur is not a requirement for financial independence, but I believe that enjoying what you do everyday does help a lot. Some people are quite happy being an employee of a large corporation or government entity. Some might yearn for increased autonomy. Still others do both with a side business, aka “side hustle”.

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A sole-proprietorship is the default business type for a US individual. You got paid for mowing someone’s lawn? You’re a sole-proprietorship. You decided to drive for Uber? You’re a sole-proprietorship. This website started out as a sole-proprietorship and later became an S-Corporation to save money on self-employment taxes.

Comments

  1. Mark N Wolinsky says:

    I am wondering why you specifically chose an S Corporation for you type of business. Thanks. Could you address the basic pros and cons of the “Corporations?”

  2. This is in part due to a large influx of illegal immigrants who cannot get a job with an employer, but who can get a TID for a business.

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