If you're starting a new business and aren't sure what type of company you should register, this article is for you.
Read on as we tell you exactly what a Sole Proprietor is. And most importantly, discover the four tax benefits of trading as a Sole Proprietor so you can reduce your tax payments.
What exactly is a Sole Proprietor?
According to the Practical Tax Loose Leaf Service,
'if you're a Sole Proprietor
, you trade for your own account. Your company doesn't exist as a distinct legal entity.'
This means, there's no legal separation between you as an individual and your business interests. You and your business are one and the same thing especially when it comes to tax. You just submit one income tax return for your company and for yourself as an individual.
So why would anyone want to register as a Sole Proprietor?
It's best to trade as a Sole Proprietor if:
You want to test a business idea on your own; and
If you want to start service based business that doesn't carry much financial risk. Or doesn't need a lot of initial financial investment in major assets.
Just bear in mind that while you don't have business partners as a Sole Proprietor, you can employ people in your business.
Now that you know what as a Sole Proprietor is and why it could benefit you to register as one, take a look at the four tax benefits it offers…
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Here are the four tax benefits of registering as a Sole Proprietor
Great news! You don't have to register your company individually for income tax. That's if you've already registered as a taxpayer in your personal capacity. You just add the business income and expenses to your personal income tax return.
You're entitled to the personal tax threshold. At least the first R70 700 of your taxable income is tax free. What's more, the first R30 000 of any capital gain is tax exempt.
You don't have to pay dividends tax on the money you take out of your business. This because the profit you earn is already yours.
You don't have to submit Annual Returns to CIPC (the Companies and Intellectual Property Commission), which saves you money.
Now that you know what a Sole Proprietor is and the four tax benefits it offers, why not consider registering as one?
PS: If you need more information about this type of company registration, check out the Practical Tax Loose Leaf Service.
It also contains three more tax benefits of registering as a Sole Proprietor.