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What is a sole proprietor? Explaining the advantages and disadvantages of a sole proprietor submitting a notification of opening

point
An individual business owner is a person who manages an individual business
Even if you file a start-up report, it is not directly related to the side-working of your company.
If the main business is an employer and the side business is an employer, there will be a difference in the business income as reported.

table of contents
What is a sole proprietor?
Advantages and disadvantages of individual business owners
Differences between individual business owners and corporations
Advantages of individual business owners submitting business opening notifications
Accounting software recommended for individual business owners
Disadvantages of individual business owners reporting opening
Questions and misunderstandings regarding the notification of opening of a private business owner
Summary
Recommended related articles
How much do you understand about the term individual business owner?

Recently, the number of people who start a side job is increasing, but in fact, even if it is a company employee, if you do a self-employed side job, you will be obliged to file a business opening notice at that time to become a sole proprietor.

However, there are few people who know that it is obligatory to submit a notice of opening as a side job. In addition, there may be various concerns, such as whether there is a side job in the company by notifying the opening of business.

In this article, I will explain what kind of person is the sole proprietor in the first place, the difference from the corporation from the meaning of the word, and the merits and demerits of submitting a business start notification .

What is a sole proprietor?
An individual business owner is a person who manages an individual business. “Business” means repetitive and continuous work. In other words, a sole proprietor means someone who makes a living by doing the same job over the long term. For example, restaurants and greengrocers in town are often run as individual business owners.

In a slightly more strict sense, a sole proprietor refers to a person who does business and works independently without submitting a notification to the tax office. “Freelance” is a term that is similar to a sole proprietor, but freelance and sole proprietor have a slightly different meaning. In general, freelance often means someone who does not belong to a company and works on a single job. Even if you do not report to the tax office, you can say that you are freelance if you are undertaking a single job individually.

If you have the image of a greengrocer in the city, a privately-run restaurant, and a freelancer as an engineer or designer who works on your own, you can use them separately.

Advantages and disadvantages of individual business owners
With the increasing impact of diversifying work styles and anxiety about the future, an increasing number of people are now considering the challenge of individual business owners.

Certainly, there are some attractive advantages for individual business owners, but there are also disadvantages. For those who want to challenge individual business owners, we recommend that you make a final decision after knowing both the advantages and disadvantages in advance so that you do not regret later. Here, from a fair point of view, I will tell you the advantages and disadvantages of becoming a sole proprietor.

Benefits of becoming a sole proprietor
Work more freely than office workers
In the case of an office worker, the working place, the contents of the work, and the working hours are all determined. On the other hand, depending on how you work, you can basically decide the working hours, places, and work contents yourself.

We can expect effect of tax saving
If you become a sole proprietor, you can expect tax savings by recording expenses. In addition to personal computers and stationery purchased for work, it is also possible to reduce part of the rent and utility costs of a house that is also used as an office. In addition, if you pay a salary to your family, it can also be used as an expense, so you can increase the tax savings.

Earn more than company employees depending on your hard work
The salary of a company employee is fixed, so the amount you can get even if you do your best or not will not change much (although it may change in the long term). On the other hand, individual business owners will earn more by doing their best. The point that you can earn more than company employees depending on your hard work is an attractive advantage for becoming an independent business owner.

Disadvantages of becoming a sole proprietor
Troublesome opening procedures to the tax office
In order to conduct business as a sole proprietor, you need to go through the opening procedure with the tax office (you can do business without doing anything, but you will not receive tax incentives). Having the necessary documents in hand and reporting to the tax office is a major disadvantage for busy office workers.

Day-to-day accounting and tax returns are required
Individual business owners who make blue returns that benefit from the tax system must record daily transactions in the form of double-entry bookkeeping.

It requires a certain amount of knowledge and it is necessary to record small transactions one by one, which is a heavy burden for office workers who usually do not have time.

In addition, every February or March every year, a financial statement that summarizes the business results for the year must be prepared and reported to the tax office (final tax return).

Recently, however, accounting software has been released that makes accounting processing and tax return preparation relatively easy, making the burden lighter than in the past.

Tend to have low creditworthiness
Compared to company employees and corporate managers, individual business owners tend to have lower creditworthiness. Individual business owners appear to be unstable, making it harder to pass credit card creation and loan screening than company employees. Also, in the business context, many people think that individual business owners are less reliable than corporations. Therefore, there is a possibility that transactions that can be concluded by corporations may not be concluded because of being a sole proprietor.

Differences between individual business owners and corporations
There are some differences between a sole proprietor and a legal entity. Here, we will tell you the difference between a sole proprietor and a corporation from three perspectives.

Opening mechanism
If you are a sole proprietor, you can start a business for free by submitting a business opening notification.

On the other hand, in the case of a corporation, preparation of the articles of incorporation and registration procedures are required, and it costs a total of about 100,000 to 300,000 yen depending on the type of company.

In terms of ease of opening, the sole proprietor is much better.

Financing
Funding methods for individual business owners include financing from financial institutions, crowdfunding, and subsidies / subsidies from public institutions. However, as mentioned above, creditworthiness is not so high, so the difficulty of raising funds is relatively high.

On the other hand, in the case of a corporation, all the means of financing that can be used by a sole proprietor can be used, and it is easy to raise funds than a sole proprietor because of its high creditworthiness. In addition, a stock company will be able to raise funds by issuing shares.

In terms of the difficulty of financing and the abundance of means, it can be said that corporations are more advantageous.

Accounting and tax system
Individual business owners who make blue declarations can carry forward the deficit only for a maximum of 3 years, but in the case of a corporation, the deficit can be carried forward for a maximum of 10 years (the amount occurring after April 1, 2018) The

In addition, corporations are also wider in terms of the amount allowed for expenses.

From an accounting and tax perspective, corporations are more advantageous.

Advantages of individual business owners submitting business opening notifications
There is a possibility that you can report with business income
If you have filed for opening and are approved by the tax office, you will be able to report your business income as business income. In order to be recognized as business income, there are various conditions in addition to being of a certain scale, but it is also one of the conditions that life is affected if the income is lost. It seems that it is relatively easy to recognize business income if you are doing it as a main business, such as if you live by that business alone.

In the case of a side job, the standard for declaring business income is rather strict. If living expenses are covered only by income from the main business, it may not be recognized as business income even if the income from the side business exceeds the main business. Although there are various advantages such as being able to calculate profit and loss and making blue declarations, there are also disadvantages, so even if you can declare in business income, you should consider whether to choose.

Can calculate profit and loss
If it is declared as business income, profits and losses can be calculated. This means that if there are salaries for other businesses or companies, profits can be combined. If a deficit comes out on the side, you can report the deficit and subtract it from your main income.

Since the income tax that has already been paid will be reduced, the amount will be refunded. This is a considerable advantage, but I will explain later that it is becoming difficult to add up profits and losses in the secondary business.

Blue declaration is possible
You must be able to report with business income, but by submitting a “tax application for blue declaration of income tax” by March 15th of the year subject to final tax return separately from the opening notification You will be able to declare. A full-fledged blue filing requires knowledge of double-entry bookkeeping, so it is considerably more complex than a white filing, but has various advantages.

In the past, many people would have asked tax accountants without knowledge, but recently there is a calculation software that makes it easy for individual business owners who have no knowledge to make blue declarations. In blue declaration, you can receive a deduction of 650,000 yen from your income if you submit a “Rental balance sheet and income statement” and file it within the due date. Even if you do not book with double-entry bookkeeping, you can get a deduction of 100,000 yen if you file in blue.

Accounting software recommended for individual business owners