Sole Ownership: Entity Choice and Self-Employment Tax Optimization

As the sole owner, you can operate as a sole proprietor, single-member LLC, or single-member S-corp—each with different self-employment tax and liability implications. The entity choice directly affects your after-tax income and annual compliance burden.

Entity choice still matters. You can operate as a sole proprietorship, a single-member LLC (disregarded for tax purposes), or a single-member LLC electing S corp treatment. Each has different self-employment tax, liability, and payroll implications. A sole proprietorship reports on Schedule C; an S corp election requires reasonable salary and payroll filings.

All income and loss flows to your return. There is no separate tax personality to absorb or defer income. Losses are subject to the excess business loss limitation under Section 461(l), currently capped at $305,000 for single filers. Profits are subject to self-employment tax of 15.3% (unless you elect S corp status).

No partner complications, but no partner capital either. You bear all financial risk and make all tax elections unilaterally. That includes Section 338(h)(10) elections, which require agreement from a selling shareholder.

The tradeoff: Sole ownership gives you total control over tax elections and entity structure, but you lose the ability to split income across partners or use partnership allocation strategies to optimize after-tax results.