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

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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.

“My Money Blog has partnered with CardRatings for our coverage of selected credit card products. My Money Blog and CardRatings may receive a commission from card issuers. All opinions expressed are the author’s alone, and the content has not been provided nor approved by any of the companies mentioned. Thank you for supporting this independent site.”



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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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