How to Start a Sole Proprietorship: The Steps, in Order

What a sole proprietorship is

The IRS defines a sole proprietor as someone who owns an unincorporated business by themselves. The SBA puts it the other way round: you are automatically a sole proprietorship if you do business and do not register as any other kind of business. There is no separate entity, so the business's assets and debts are yours, and the SBA notes you can be held personally liable for them.

An LLC is a different thing: a separate filing with the state. If you are weighing one, the EIN rules for it are in EIN for a single-member LLC.

How to start a sole proprietorship, step by step

1. Pick the name, and register it if it is not yours. Doing business under your own legal name needs no name filing. A trade name (also called a DBA, fictitious name or assumed name) is different: the SBA says most states require you to register it, with the state, the county or the city depending on where you are. A DBA gives no legal protection to the name by itself. See EIN for a DBA for how the name and the EIN fit together.
2. Get the licenses and permits for your work. The SBA says these depend on what you do and where you do it, and can come from the state, the county and the city. Activities it lists as commonly regulated locally include construction, plumbing, restaurants, retail, dry cleaning and vending machines. Your Secretary of State's website is the SBA's suggested starting point.
3. Decide whether you need an EIN, and get it if you do. The table below has the IRS rules. Get it before you hire, open payroll or file an excise return, and before you hand clients a W-9 if you want your SSN off it.
4. Register for state taxes. The SBA says whether you need a state tax ID depends on the state taxes your business owes, and the steps vary by state. It names income and employment taxes as the two most common state taxes for small businesses, and a seller may also need a sales tax permit. See state tax ID numbers, sales tax permits and state employer ID numbers by state.
5. Open a business bank account. The SBA lists an EIN, or an SSN for a sole proprietorship, along with any DBA and business license. It also says a DBA together with an EIN lets you open an account in the business name. IRS Publication 334 recommends a separate bank account for the business. Details by bank are in business bank account requirements.
6. Set up for estimated tax. No one withholds tax from your business income, so you generally pay during the year with Form 1040-ES if you expect to owe $1,000 or more for the year. The IRS says a new EIN may enroll you in EFTPS, its payment system, automatically.
7. File Schedule C with your Form 1040 each year. Add Schedule SE for self-employment tax, and the employment tax returns once you have employees.

When a sole proprietor must have an EIN

IRS Publication 334 says a sole proprietor must have an EIN to pay wages to one or more employees or to file pension or excise tax returns. The SS-4 instructions tell sole proprietors to apply if they have a qualified plan or file excise, employment, alcohol, tobacco or firearms returns, and the SBA lists a Keogh plan by name.

The longer version, with what changes once you hire, is in how to get an EIN as a sole proprietor.

Why many sole proprietors get an EIN anyway

• It keeps your SSN off client paperwork. Clients who report what they pay you ask for a W-9 with your taxpayer number. Form W-9 lets a sole proprietor who has an EIN enter it instead of the SSN. See how to fill out a W-9.
• Banks and states may ask for one. The IRS says that if you do not need an EIN for federal tax purposes, you can still request one for banking or state tax purposes.
• It is ready when you hire. The first employee makes it mandatory, and payroll cannot start without it.

How a sole proprietor applies for the EIN

The application is Form SS-4, or the IRS online version of it. Three things trip sole proprietors up:

• Line 1 is your own name, not the business name. The SS-4 instructions say to put the business name on line 2. The W-9 works the same way: your name on line 1, the DBA on line 2.
• Line 9a is the sole proprietor box, with your SSN or ITIN entered beside it.
• One EIN covers all of it. The instructions say a sole proprietor generally files only one SS-4 and needs only one EIN, however many businesses or trade names it has. The IRS also allows only one EIN application per day, by any method.

Taxes for a sole proprietorship

The IRS forms table for sole proprietors starts with Form 1040 and Schedule C for income tax, Schedule SE for self-employment tax and Form 1040-ES for estimated tax. Employers add Form 941 (or 943 or 944), Form 940 for federal unemployment tax, and W-2s. Publication 334 gives the figures that matter in year one:

• You file a return if net earnings from self-employment are $400 or more.
• Self-employment tax is 15.3% of net earnings: 12.4% social security and 2.9% Medicare. The social security part stops at $184,500 of net earnings for 2026.
• Estimated payments are generally due if you expect to owe $1,000 or more.
• For payments made after 2025, the 1099 information reporting threshold rises to $2,000.

Rough numbers for your own year: self-employment tax calculator and estimated tax calculator. A full start-up list is in the new business checklist.

Starting a sole proprietorship in Texas

Texas follows the same pattern. Using your own name, there is nothing to file to exist. Using another name, the Texas Secretary of State says a sole proprietor files an assumed name certificate with the county clerk in each county where it keeps a business office, or, with no office in Texas, in each county where it does business. The fee and filing rules come from the county clerk, not the Secretary of State. The certificate does not give you rights to the name or stop someone else from filing the same one.

If you form an LLC later

The IRS list for sole proprietors says you get a new EIN if you incorporate, form a partnership or declare bankruptcy, and not if you change the business name, move or run several businesses. A single-member LLC can keep using the owner's sole proprietor EIN if it is not taxed as a corporation and has no employees and no excise tax. Once it has to file employment or excise taxes, it gets its own. The full list is in do I need a new EIN.

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