If there’s one thing you’ve learned from me, I hope it is that it is expensive and dangerous to operate as a Sole Proprietorship. And a single member LLC that take default taxation, without electing how to be taxed, isn’t much better.
I’ve now got one more reason to NOT like Sole Proprietorships.
Here are my 4 reasons to tell you why NOT to be a Sole Proprietorships and my reason reasons why you should NOT be a single member LLC without electing a tax treatment.
(1) All of your personal assets are at risk.
The question shouldn’t be “How much money will you make from this venture?” The question should be: What do you have to lose personally if someone sues you?
NOTE: This is the one that is not applicable in most states if you have a single member LLC.
(2) You will pay self-employment tax of 15.3% which is completely avoidable in the proper business structure.
(3) You have a 1 in 3 chance of being audited, as opposed to a 1 in 100 chance of audit in other business structures.
(4) You can’t establish business credit.
This is my new addition! I didn’t realize that any other business structure CAN qualify for business credit for 10 to 100 times more than you probably can personally. But you can NOT take advantage of that if you’re a Sole Proprietorship.