[et_pb_section fb_built=”1″ custom_padding_last_edited=”off|desktop” _builder_version=”4.27.2″ custom_margin=”0px||0px||false|false” custom_padding=”0px||0px||false|false” custom_padding_phone=”0px||||false|false” da_disable_devices=”off|off|off” locked=”off” global_colors_info=”{}” da_is_popup=”off” da_exit_intent=”off” da_has_close=”on” da_alt_close=”off” da_dark_close=”off” da_not_modal=”on” da_is_singular=”off” da_with_loader=”off” da_has_shadow=”on”][et_pb_row column_structure=”1_3,2_3″ _builder_version=”4.27.2″ background_size=”initial” background_position=”top_left” background_repeat=”repeat” width=”100%” custom_margin=”0px||0px||false|false” custom_padding=”0px||0px||false|false” global_colors_info=”{}”][et_pb_column type=”1_3″ module_class=”table-contents” _builder_version=”4.23″ background_color=”#f3f2f6″ custom_padding=”25px||25px||true|false” sticky_position=”top” sticky_limit_bottom=”section” sticky_position_tablet=”top” sticky_position_phone=”none” sticky_position_last_edited=”on|desktop” border_radii=”on|24px|24px|24px|24px” global_colors_info=”{}” custom_padding__hover=”|||”][et_pb_text _builder_version=”4.23″ text_font=”||||||||” global_colors_info=”{}” background__hover_enabled=”on|desktop”][\/et_pb_text][\/et_pb_column][et_pb_column type=”2_3″ _builder_version=”4.16″ custom_padding=”|||” global_colors_info=”{}” custom_padding__hover=”|||”][et_pb_text admin_label=”Definition description” _builder_version=”4.27.6″ header_2_font_size=”32px” hover_enabled=”0″ header_2_font_size_tablet=”30px” header_2_font_size_phone=”26px” header_2_font_size_last_edited=”on|tablet” global_colors_info=”{}” sticky_enabled=”0″]<\/p>\n
Thinking about starting a business on your own? A sole proprietorship is the simplest form of a business structure, as there\u2019s only one owner with full control \u2013 and you get to keep all the profits.<\/p>\n
But there are trade-offs. There\u2019s no legal separation between you and the business, so you\u2019re personally responsible for all of the business debts and obligations. If that sounds scary, don\u2019t worry. We\u2019ve got all the important information around taxation, your legal obligations, the day-to-day running of the business, plus when to consider other business structures.<\/p>\n
[\/et_pb_text][et_pb_image src=”https:\/\/www.reckon.com\/au\/wp-content\/uploads\/2023\/07\/Sole-proprietorshup-sole-trader-Definition-3.png” alt=”Sole Proprietorship (sole trader) definition: Unincorporated business with a single business owner who pays personal income tax on their earnings” title_text=”Sole Proprietorshup (sole Trader) Definition 3″ align=”center” admin_label=”Image” _builder_version=”4.27.4″ _module_preset=”default” global_colors_info=”{}”][\/et_pb_image][et_pb_text admin_label=”Definition description + related terms” _builder_version=”4.27.4″ header_2_font_size=”32px” header_2_font_size_tablet=”30px” header_2_font_size_phone=”26px” header_2_font_size_last_edited=”on|tablet” global_colors_info=”{}”]<\/p>\n
A sole proprietorship is an unincorporated business with a single owner. Unlike a company<\/a>, it\u2019s not a separate legal entity, and that legal distinction matters because there\u2019s no legal protection ring-fencing you from business liabilities.<\/p>\n If your business owes money or is subject to legal action, then your personal assets (yes \u2013 your home, car, and even personal savings) can be at risk. This is called unlimited liability.<\/p>\n A sole proprietorship\u2019s business income is taxed in your hands. In other words, you pay taxes by including the business results in your personal tax return. Here are some need-to-knows:<\/p>\n Top tip for international readers:<\/em><\/span> In the United States, a sole proprietorship also files on the owner\u2019s return and might owe self-employment tax (i.e. Social Security and Medicare) via the Internal Revenue Service (IRS) and federal government rules. Australia doesn\u2019t have a \u2018self-employment tax\u2019, but superannuation and PAYG are in place for similar reasons. Likewise, the US limited liability company (LLC) provides liability protection \u2013 in Australia, the rough equivalent is a company (Pty Ltd).<\/p>\n First and foremost: business income and net revenue, including sales, fees for services, commissions and other total amounts earned by your business.<\/p>\n Business expenses also count. These are the costs you incur to earn that income (think tools, subscriptions, advertising, travel, rent of a workspace, merchant fees). Claiming only the business portion is important here.<\/p>\n Finally, don\u2019t forget about record-keeping. Keep all your invoices, receipts and bank statements somewhere safe and easily accessible. Ask any accountant or bookkeeper<\/a> \u2013 they\u2019ll tell you that having good financial records will support your loan applications, tax returns and any potential audits in future.<\/p>\n Remember, without a separate legal entity, you carry all personal liability for your business liabilities. So keep your books clean, have a separate business bank account, always meet your tax obligations and \u2013 perhaps most important of all \u2013 reassess your business structure as you grow.<\/p>\n [\/et_pb_text][ba_social_share icon_bg=”#03002e” icon_padding=”10px|12px|10px|12px|true|true” layout=”classic” show_text=”off” btn_padding=”0px|0px|0px|0px|false|false” btn_bg_color=”RGBA(255,255,255,0)” _builder_version=”4.23″ _module_preset=”default” custom_margin=”50px||||false|false” custom_padding=”25px||||false|false” custom_css_before=” content: %22SHARE THIS%22;|| font-size: 16px;|| font-weight: 700;|| line-height: 22px;|| letter-spacing: 0em;|| text-align: center;|| color: #ff5447;|| margin-bottom: 10px;|| display: inline-flex;|| position: absolute;|| margin-top: 10px;” border_width_top_main=”1px” border_color_top_main=”#e4e4e4″ border_radii_icon=”on|5px|5px|5px|5px” global_colors_info=”{}” custom_css_before_last_edited=”off|desktop”][ba_social_share_child _builder_version=”4.23″ _module_preset=”default” global_colors_info=”{}”][\/ba_social_share_child][ba_social_share_child network_type=”facebook” _builder_version=”4.23″ _module_preset=”default” global_colors_info=”{}”][\/ba_social_share_child][ba_social_share_child network_type=”linkedin” _builder_version=”4.23″ _module_preset=”default” global_colors_info=”{}”][\/ba_social_share_child][ba_social_share_child network_type=”email” _builder_version=”4.23″ _module_preset=”default” global_colors_info=”{}”][\/ba_social_share_child][\/ba_social_share][\/et_pb_column][\/et_pb_row][\/et_pb_section]<\/p>\n","protected":false},"excerpt":{"rendered":" Thinking about starting a business on your own? A sole proprietorship is the simplest form of a business structure, as there\u2019s only one owner with full control \u2013 and you get to keep all the profits. But there are trade-offs. There\u2019s no legal separation between you and the business, so you\u2019re personally responsible for all […]<\/p>\n","protected":false},"author":35,"featured_media":0,"menu_order":0,"template":"","format":"standard","meta":{"_et_pb_use_builder":"on","_et_pb_old_content":"","_et_gb_content_width":"","inline_featured_image":false,"_lmt_disableupdate":"no","_lmt_disable":"","footnotes":""},"class_list":["post-264293","glo","type-glo","status-publish","format-standard","hentry"],"yoast_head":"\nHow a sole proprietorship works day-to-day<\/h2>\n
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Taxes for sole traders in Australia<\/h2>\n
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What counts as income and expenses?<\/h2>\n
Checklist: How to set up as a sole trader in Australia<\/h2>\n
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