Going into business by becoming a sole proprietor is
the quickest and simplest way to get started. Anyone
with a Social Security number can do it. Check with the
laws of your state. You may need a state tax identification
number as well but they are relatively simple to get.
Basics of Becoming a Sole Proprietor
As already stated, you only need a Social Security number
and sometimes a tax identification for your state (check
your state laws). Also check with you local city government
to see about zoning laws and if a they require a registration.
In some cities, the local government does not allow some
businesses in certain zones. Make sure you find out about
this information ahead of time. Some states have a gross
receipts tax requirement and you will have to file those
taxes so you need a tax identification number.
If you are interested in becoming a sole proprietor,
understand that you are it. It is your job, your business,
and your risk. Check to see if you should carry professional
liability insurance to cover your personal risk. If someone
stakes a claim for a loss incurred as the result of your
business, they can sue you personally. But closely evaluate
your business and see how high your risk is. For example,
if you are a web designer and most of your web sites
are brochure-style sites, how much liability can you
have? It may not justify the cost of insurance.
Understand that you are the business entity. When you
file your Federal Income Tax each year, you will list
business expenses on either Schedule C or Schedule C-EZ
of Form 1040 under your name and your Social Security
number. Now, you may want to operate under a different
name for advertising purposes. This is your Doing Business
As or DBA name. But the government and banks will consider
you and the business to be the same.
Sole Proprietor Business
You, as a sole proprietor are working from contract
to contract. Let us say a business wants to set up a
web presence and build a web site. The business would
not hire a full-time web designer because there would
not be enough work to keep the person busy throughout
the year. They would hire a web designer. It could be
that they hire a web designer who is a sole proprietor
and who is the web designer (has no employees). Sole
proprietors doing contract work can be freelancers.
The sole proprietor may occasionally hire employees,
but he or she usually works alone. This also means that
the sole proprietor must understand the process of finding
work is an ongoing. If you, as a sole proprietor, do
not constantly seek out new clients and projects then
your business will die. Understand that for the Federal
Government to consider you as a contractor for tax purposes
you must work for several different clients throughout
the tax year.
It's Up To You
Remember that when you are sole proprietor, it is all
up to you. You are personally liable for anything if
a customer would like to sue you for something. And,
if something happens to you then it has a significant
impact on the business because you are the business.
Carefully evaluate if a becoming a sole proprietor is
the right structure for you.
Guide
to becoming a sole proprietor. Complete steps.
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