Sole Proprietor or Corporation?

A sole proprietorship is you: the business income lands on your personal return, its debts are your debts, and its risks are your risks. A corporation is a separate taxpayer with its own rate structure and its own liability shield.

Neither is 'better.' Each fits a different stage and a different kind of business — and moving from one to the other later is possible, usually through a tax-deferred rollover, but it is easier to choose well the first time.

For a modest, low-risk income stream — consulting on the side, an early-stage venture still finding its footing — the sole proprietorship's simplicity is genuinely valuable: no separate return, no minute book, and losses that reduce your other personal income.

As profit grows past what you spend, and as risk, employees, and contracts accumulate, the corporation's advantages compound: low-rate retained earnings, creditor separation, income timing flexibility, and eligibility for the lifetime capital gains exemption on a qualifying sale. The transition point is different for every owner, which is why this is a decision to model, not to guess.