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Many small business proprietors start with a sole proprietorship to avoid the costs of forming a corporation or LLC. This is a wise decision as statistics show that a majority of small businesses lose money for the first several years.

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Defenders of your IRS position would say it comes home to Section 61. The waitress provided a service for me, and I paid for this. Compensation for services is taxable. End of account.

If purchase a national muni bond fund your interest income will be free of federal income taxes (but not state income taxes). If you buy a state muni bond fund that owns bonds from your home state this interest income will be "double-tax free" for both federal while stating income taxing.

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