A company that has one owner who controls and manages the business is known as a sole proprietorship. Despite not being a legitimate corporate structure, it is the simplest and most possible way for small business owners to operate their companies and to make an average of $45,000 to $50,000 annually.
It is simple to create and run, has low initial expenses, uses the right tax computations, and also gives you the right to all profits. It is imperative to note that the majority of the 31.7 million small firms in the US—roughly 23.04 million—are sole proprietorships. According to a UENI survey, more women are operating sole proprietorships.
Steps to Start a Sole Proprietorship in Texas
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Select a Name for the Business
The lone proprietor in Texas is permitted to use either their legal name or a trading name. According to state law, if you intend to use an assumed business name or trade name, it must be different from the name of another corporation that is currently on file.
This is because trademarks are protected by both common law and federal law, it is wise to choose a name that is not similar to that of another already established business. Search the following public databases to make sure your company name is available:
Texas Comptroller of Public Accounts
U.S. Patent and Trademark Office: (Click on the TESS link under Tools.)
File an Assumed Business Name
Texas mandates that you register an assumed business name with the clerk in the county where you intend to conduct business if you use a business name that differs from your legal name.
In Texas, this is a necessary prerequisite. You must complete an assumed name certificate, which is available from the county clerk’s office, and mail it to the county clerk at the address specified in the application in order to register your assumed business name. The filing fee is approximately $10, but it could be different.
Get the Necessary Licenses, Permits, and Zoning Clearance
Depending on the nature of your company’s operations, you may need to obtain a business license or a professional license. Texas has a thorough list of all professions and occupations that require a license for any sole proprietorship on its website.
A company can get this information by visiting Texas’s occupational licenses and permits page. Additionally, your firm may be subject to regional laws, such as licenses, zoning clearances, and building permits. For more details, you should contact the local and county governments.
Acquire an Employer Identification Number
An employer identification number (EIN) is required for sole proprietors who want to hire staff. The IRS has assigned a nine-digit number to use when filing taxes. The IRS requires all firms with employees to report pay using their EIN. Note that online registration for an EIN is available on the IRS website.
Due to the ability to file taxes using their social security number, sole owners without employees are not required to get an EIN. However, you could still require one for your company. Opening an account may be required by some banks, which helps lower the risk of identity theft.
Open a Business Bank Account
One of the things you can do after registering the sole proprietorship is to open a business account. You may complete your accounting and bookkeeping easily and also obtain a precise picture of the financial situation of your company.
You can deduct any losses incurred for tax reasons if you have a separate company account, which demonstrates to the IRS that your operation is not a side project. Activities in a business account enable you to develop a positive credit history, which is essential to later obtaining a loan.
Buy the Required Insurance Coverage
A sole proprietorship carries a high level of personal liability, so you are required to get insurance in addition to defense. Consider purchasing liability, health, and property insurance.
Given that any driving done for business purposes is not covered by your personal auto insurance, you want to consider purchasing business auto insurance, which costs about $600-$1,000. Although the initial fees and investment may seem high, your assets will be protected.
File and Pay your Taxes
You will submit and pay income tax using the schedule C on your form 1040 on all of your business profits if you are a lone owner because there is no separate tax filing required.
Keep your company out of the “hobby business” zone by making a self-payment each month, if you wish to reduce the taxes that are imposed on it. This proves to the IRS that your company is legitimate and that your goal is to make money.
Your business income has not been subject to self-employment tax or income tax, therefore you may be required to pay 15.3 percent in self-employment taxes every quarter.
It is important to note that starting a business as a sole proprietor comes with some benefits, which include; low startup expenses, and you are completely private. It is easy to start and run your own business. If circumstances change, it is simple to change your legal structure afterward. You can also possibly dissolve your company.