Sole Proprietorship
Frequently Asked Questions

A sole proprietor is an individual who owns an unincorporated business by him or herself. There is no paperwork to be filed with the state if you choose to operate as sole proprietor. Unlike an LLC and C corporation, a sole proprietor can be held personally liable for debts and obligations of the business because a sole proprietorship is not a separate business entity from the business owner – there is no liability protection.  Although it is not required, we (as well as many other experts) recommend (1) keeping a separate bank account for your business activity (2) applying for an EIN and (3) applying for a fictitious name (also known as “doing business as” or “DBA”) which is discussed below.

None. There is no filing requirement to operate as a sole proprietor.  You should be able to walk into your financial institution and open a bank account without any additional paperwork. Each bank’s policies are slightly different and we recommend calling your financial institution ahead of time to confirm what their policies are. Although you do not have to register with the state, we recommend applying for an EIN and fictitious name (also known as “doing business as” or “DBA”).

You will report all business income or losses on your personal tax return by completing Schedule C, Profit or Loss from a Business which will be submitted together with your Form 1040, U.S. Individual Income Tax Return. As a sole proprietor, you will make contributions to Social Security and Medicare which are called, “self-employment taxes” and are sometime referred to as “SE taxes”. When you were an employee, your employer paid half of these taxes and you paid the other half which is what was deducted from your paycheck. Now that you are both the employer and employee, you will pay the entire amount by yourself. Self-employment taxes are reported on Schedule SE, which you will submit along with Form 1040 and Schedule C noted above.

Note: A single member LLC which chooses to use the default tax classification of “disregarded entity” is also taxed like a sole proprietor.

An EIN is a 9 digit number assigned by the IRS and is required to be able to identify the tax account of employers and others who do not have employees. If operating as a sole proprietor, you may not need to apply for one, but it is highly recommended as it can avoid identify theft, help you establish yourself as an independent contractor and it may be required by your financial institution to establish a bank account. There are circumstances where an EIN is required for a sole proprietor which are:

• you will hire employees
• you buy or inherit a business that you operate as a sole proprietorship
• you have a Keogh or Solo 401(k) retirement plan
• you incorporate or form a partnership or LLC or
• you file for bankruptcy.

Applying for an EIN is a different process than registering your business with the state. Our services include the option to have us apply for an EIN and communicate with the IRS on your behalf.

A fictitious name is required for a sole proprietor who wishes to conduct business utilizing a name that is different than his or her personal legal name. (i.e. it is required if your legal name is “John Doe” and you wish to operate under the name “Sunshine Landscaping” instead of “John Doe”. Our partners can assist you in registering your fictitious name with the state.

The state in which your business is filed requires each business that is formed within the state to elect a registered agent (RA). Since a sole proprietorship is not incorporated, there is no requirement to have an RA.

As noted above, sole proprietors are not required to file any documentation with the state. However, if you have decided you wish to apply for an EIN or fictitious name (also known as “doing business as” or “DBA”), we can assist you by clicking here to start filing.