Managing a business is complicated, but running things as a sole proprietor can make certain aspects both easier and cheaper. But just because this business structure has various benefits — including when it comes to taxes — that does not mean that there are no challenges. For example, how a spouse interacts with a sole proprietorship can have unintended consequences.

Georgia business owners are responsible for withholding paying employment taxes, but there are plenty of tax benefits associated with sole proprietorships. However, an owner’s spouse may advertise or interact with the public on behalf of the business, and in doing so hold him or herself as a co-owner. Should this happen, the IRS will likely hit the owner with back taxes and other penalties.

This situation can sometimes be avoided easily enough. A sole proprietor can simply create an independent contractor agreement when relying on a spouse for work, even if only occasionally. Sole proprietors should be sure to avoid misclassifying their spouses, though. If a spouse is working as a regular employee or even a co-owner, then a contractor agreement will not provide much — if any — protection.

There are enough hurdles to worry about in business without the added stress of paying off back taxes and penalties. This is why it is crucial for sole proprietors in Georgia to truly understand the nature of their business structures, responsibilities and more. For many, this means working alongside an experienced attorney when forming a new sole proprietorship or seeking guidance for difficult situations.