The sole proprietorship is taxed at the individual tax level. Basically, the income earned during the calendar year is calculated on Schedule C of Form 1040. The final number is transferred to the front page of Form 1040 to line 12. Schedule C is divided into three major sections.
Schedule SE is a schedule attached to Form 1040 for small business owners to calculate their self employment tax. Traditionally, Schedule SE is used by self employed individuals reporting their income on Schedule C, partners who received assigned income on a Schedule K-1, and members of a Limited Liability Company who are assigned active income via Schedule K-1.
Simply put, this is a tax on your net earnings from your small business operation. If you are unincorporated, you have to pay this tax. This includes those in partnership arrangements, and in any form of Limited Liability Company status. Why don’t corporations pay the tax? Actually they do, it’s just called a different name.