Individual Sole Proprietors

Definition

A sole proprietor is an individual who owns and runs an unincorporated business directly, with no legal separation between the owner and the business, so the owner is personally liable for its debts. For federal tax purposes the business is not a separate taxpayer: its profit is reported on the owner's individual return (Schedule C) and is subject to self-employment tax, the Social Security and Medicare tax on the self-employed.^[1]

Federal law

A market and contract term. No Act of Congress defines it; the federal laws below apply as described.

1. Internal Revenue Code of 1954, Pub. L. 83-591, ch. 736, §§ 1401, 1403, 68A Stat. 353, 355. Imposes the tax on self-employment income of every individual (26 U.S.C. § 1401), titled the Self-Employment Contributions Act (26 U.S.C. § 1403). Official text: govinfo.gov, U.S. Government Publishing Office.

Federal regulations

Rules issued by federal agencies under the laws above.

2. Business entities; definitions, 26 CFR 301.7701-2 (Internal Revenue Service, Department of the Treasury). Treats a disregarded single-owner entity's activities in the same manner as a sole proprietorship, which is why a single-member LLC owned by an individual is reported like one. Official text: govinfo.gov, U.S. Government Publishing Office.