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Starting a Sole Proprietorship

Starting a Sole Proprietorship

  • August 27th, 2014
  • jrhassociates
  • Comments Off on Starting a Sole Proprietorship

If you’re looking for the easiest, least involved form of a business to start, skip over the different kinds of partnerships and types of corporations, because you’re probably most interested in starting a sole proprietorship. In doing so, you establish a business that is unincorporated and owned solely by you. As the sole owner, you are in complete unity with your business—there is no distinction for tax or legal purposes, and all profits, losses, and liabilities go directly to you.

Starting a Sole Proprietorship

When comparing business types, you wind up finding that the biggest disadvantage of many types is the massive amount of paperwork and administrative effort. That’s of no issue when starting a sole proprietorship, because it requires no formal action at all. As soon as you start operating as a business, it automatically becomes recognized as a sole proprietorship, as long as you don’t have any other owners involved. Some sole proprietors may not even realize that they are so—for example, freelance workers are sole proprietors by default.

Despite the fact that you don’t have to file to declare your business a sole proprietorship, there are some things that you will need to do officially. Depending on your industry, state, and locality, there are certain regulations by which you’ll need to abide. That may include obtaining licenses or permits necessary to do business in your area. The US Small Business Administration provides a Licensing and Permits tool to help business owners find the necessary federal, state, and local permits, licenses, and registrations for different businesses.

After starting a sole proprietorship, your business will operate under your given name, because it’s not considered a separate entity from you. If you decide you want your business to have a different name, you’ll have to file for a fictitious name, commonly known as a DBA (doing business as) name. This name will have to be unique to you, and not already registered by another company.

One of the biggest business partnership advantages is the way that the company is taxed—or rather, the way the company isn’t taxed. By that we mean that because partnerships aren’t taxed as independent entities, the profits and losses are “passed down” to the partners, who are then taxed through their individual filings. A sole proprietorship is similar in this regard, because since the owner and business are considered as one, the business isn’t taxed separately. All income from the business, as well as losses and expenses, are accounted for on the owner’s tax forms. Sole proprietors are required to withhold and pay all income taxes, which include self-employment and estimated taxes.

If you have questions that need answers about starting a sole proprietorship, the tax professionals at JRH & Associates are here to help! Call us at (516) 794-5752 today!

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