Individuals may operate a business as a sole proprietor or they may take steps to form an incorporated business entity, such as an S corporation. While single-member S corporations are legal, a sole proprietor cannot file as an S corporation unless he takes the proper steps to create the corporate entity.

Can my wife be an employee of my S Corp?

In your S corporation, your spouse is not a regular employee to whom you can provide all fringe benefits tax-free while deducting those expenses on your tax return. When your S corporation has your spouse as an employee, the tax code gives you a limited list of fringe benefits.

Can a sole proprietorship be considered a corporation?

A sole proprietorship can be legally considered a corporation. If you incorporate your sole proprietorship as an S corporation, you will be viewed as the sole shareholder as well as the director and president. By establishing an S corporation, you can avoid paying both corporate and personal taxes.

Can a part time spouse work for a sole proprietorship?

In one case decided by the Tax Court in 2006, an individual operated a sole proprietorship daycare business and employed her husband on a part-time basis. His entire compensation was in the form of Section 105 Plan reimbursements. The compensation arrangement was supported by written documents signed by the proprietor and her husband.

How is a sole proprietorship different from a general partnership?

Sole Proprietorship. Unlike a corporation, LLC, general partnership, or LLP, a sole proprietoship is not a separate legal entity. The business owner (proprietor) personally owns all the assets of the business and is in sole charge of its operation.

What kind of taxes do sole proprietorships pay?

Where S corporations shine is in the realm of Social Security and Medicare taxes. When you’re a sole proprietor, all the profit you earn from your business is subject to these taxes. However, this is not necessarily the case if your business is organized as an S corporation.