No, sole proprietorships are not double taxed. In a sole proprietorship, the business and the owner are considered a single entity for tax purposes. This means that all profits and losses from the business are reported on the owner’s personal tax return, typically using Schedule C (Form 1040).
To elaborate, the income generated by the sole proprietorship is taxed only once at the individual’s personal income tax rate. There is no separate business tax levied on the entity itself, which is a key difference between sole proprietorships and corporations, where corporate income can be taxed at the corporate level and then again at the individual level when dividends are distributed to shareholders, leading to what is commonly referred to as ‘double taxation’.
In summary, since the owner of a sole proprietorship pays taxes on business income through their personal tax return, they do not face double taxation.