Business
Sole proprietorship
A business owned by one person that is not legally separate from that person.
It is the default. Start working for yourself and file nothing, and this is what you have. There is no formation document and no separate tax return: income and expenses go on Schedule C attached to your own 1040.
Because there is no separation, there is no liability protection. Business debts are personal debts.
A single-member LLC is taxed exactly this way unless it elects otherwise, which is why the LLC paperwork changes your liability position without changing your return.
Related
Terms that come up beside this one
LLC
A legal structure that separates a business’s liabilities from its owners, formed with a state.
Schedule C
The form a sole proprietor files with their personal return to report a business’s income and expenses.
Disregarded entity
A business that exists legally but is ignored for federal tax purposes, its activity reported on the owner’s own return.