A Guide to Sole Proprietorship - How and Why to Go Into Business on Your Own
Looking to discover the benefits of becoming the sole proprietor of a business, as well as how to set yourself up as one? Then you have come to the right place. Just keep reading for a detailed guide on both.
Defining sole proprietorship
If you run a business without any partners or shareholders and pay income tax on business income you are classed as a sole proprietor.
Benefits of being a sole proprietor
With no partners to share your profits will you get to claim 100%. You also don’t have to run your decisions by anyone else or pay the cost of incorporating your business (LLC). Additionally, as a sole proprietor, you can benefit from taxes that are much easier to complete, as well as a lower rate than a partnership or LLC would pay.
How to become a sole proprietor
The good news is that starting a business as a sole proprietor is one of the fastest and easiest options. You’ll find simple and easy-to-follow steps below.
Step 1: Check the specific laws and regulations concerning starting up a sole proprietor business in your state.
Remember these do differ from state to state and educating yourself on them before you begin is a must.
Step 2: Come up with a great business name
As a sole proprietor, the official name of your business will be your legal name. However, you will also need a business name to register as your DBA. DBA stands for your ‘doing business as’ name which will be used officially for things such as setting up a business bank account.
When it comes to choosing the DBA moniker for your business there are a myriad of ways to devise a great name, with some people using classic names from mythology or literature, while others prefer acronyms.
To see if your company name is already in use, and has been trademarked you can check the
United States Patent and Trademark Office (USPTO). If it has been trademarked then it's back to the drawing board, while if it's free it's a good idea to own the trademark yourself so no one else can use it.
Step 3: Secure any licenses and permits you may need
Just like any other kind of business, sole proprietors require a business license and can be fined if they are found not to have one.
Depending on the type of business you are running you may also need licenses for things like transporting animals, permits for running a business from home, preparing or serving food, and certifications of healthy and safety training.
Step 4: Make sure you have an EIN
Even as a sole proprietor, you will need an EIN to be able to run your business. The good news is that you can find out exactly how to apply for an EIN number for sole proprietor by accessing the linked post. Indeed, by following the advice you will find there you can make applying for your EIN number as fast and easy as possible.
Step 5: Get insured
While there are many benefits to choosing the sole proprietor business route, it is worth noting that one of the major disadvantages is that if anything does go wrong, and you get sued, your personal assets such as savings, and property are at risk.
This increased level of risk means it makes sense to make sure you have all the proper insurance in place. In particular, securing liability insurance as a sole proprietor is crucial because this will help protect your personal assets. Property insurance is also a must, as are health and disability coverage.
Step 6: Open a bank account for your business
To go into business as a sole proprietor you will need to open a bank account. This will help you keep your personal and business finances separate which can help a great deal when it comes to completing your tax return.
Step 7: Get your tax right
Last of all, as a sole proprietor it's crucial that you get your taxes right and pay them on time.
Remember you file a Schedule C return, form 1040, and will pay income tax on all your net business income. If you are unsure or confused by your taxes, working with a tax professional is a great way to make sure everything is completed accurately.
It's also a smart idea to set some time aside around tax season to make sure you can complete your returns without causing any additional stress.