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My Mom explained to me how Americans normally go into business. They start selling something and poof! they're in business. They sell a product or a service or an idea. They do this because they want money. Money is first. Customers are first in their heads. When Americans go into business this way, it's called a Sole Proprietorship and without even knowing it, I'm already a Sole Proprietor.

It is the form of business you and I use. It's simplest, easiest to maintain. One just says "I'm in business." and -- Poof! They are! It's also the easiest form to escape from. One just says "That's it. Kitchen's closed. No more business." and they're done.

It's an extremely flexible and manageable form of doing business. 85% of American businesses file on a schedule C. If there is over $400 of income, one MUST file a Schedule C even if the net result is a loss.

The problem with a Sole Proprietorship is that you and your business are one. There is no legal separation. Some people solve this with business insurance; others think they aren't in an activity where they might get sued; still others use a Limited Liability Company (LLC) to provide separation. But it's fragile. An LLC owned by 1 person is filed on a Schedule C and it's not much of a separation.

You are never your businesses' employee

You can have employees but you are not one of them. The Sole Proprietorship is filed on a Schedule C. Income (at the top) Deductions (underneath) Office in home expenses & depreciation off that number, if anything's left. The net profit goes two places: to the front of the 1040, and to the Schedule SE to calculate Social Security taxes, which go to the back of the 1040. Business income: all cash-in from business activity should be listed on some sort of Monthly summary of cash receipts.

Sample Monthly Summary of Cash Receipts