Sole Proprietorships

According to the IRS, a sole proprietorship is the most common form of business organization. It is easy to form and is defined as any unincorporated business owned and controlled entirely by one individual. In general, for Maryland and federal purposes the owner is personally responsible for all financial obligations and debts of the business.

Sole proprietors can operate any kind of business as long as it is a business and not an investment or hobby. It can be full-time or part-time. Every sole proprietor is required to keep business records to comply with federal and Maryland state tax law.

Federal Information for Sole Proprietors

For federal purposes sole proprietors file Schedule C-EZ, Profit or loss from Business with their personal tax return Form 1040. Sole proprietor farmers file Schedule F, Profit or Loss from Farming. See Sole Proprietorships on the IRS Web site for federal information. 

Maryland Information for Sole Proprietors

If you are a sole proprietor in Maryland you would file the same as an individual using Form 502. Your net profit or loss is combined on the return with your other income and deductions and taxed using individual tax rates.

Sole proprietors generally do not have taxes withheld from their income so they usually make quarterly estimated tax payments. The Maryland form for quarterly estimated tax payments is Form PV.

If a sole proprietor in Maryland possesses personal property (furniture, fixtures, tools, machinery, equipment, etc.) or needs a business license, the proprietor must register and file an annual personal property return with the:

Department of Assessments and Taxation
Unincorporated Personal Property Unit
301 West Preston Street, Room 806
Baltimore, MD 21201-2395

For more information, call 410-767-4991.

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