Which of the following best describes the nature of a sole proprietorship for tax purposes?

A sole proprietorship is defined as an unincorporated business owned and operated by a single individual. For tax purposes, it is treated as a pass-through entity, meaning the income and expenses of the business are reported on the owner's personal tax return. The profits or losses from the sole proprietorship "pass through" to the individual owner's tax filings, resulting in the business not being taxed separately from the owner.

This reflects the simplicity of a sole proprietorship structure, where the business does not face double taxation like a corporation might. The owner typically reports income on Schedule C of Form 1040, and thus is taxed just like any individual would be, according to individual income tax brackets. This arrangement allows for straightforward tax filing and accounting, making the sole proprietorship an attractive option for many small business owners.