How to Start a Sole Proprietorship in Kansas
Starting a sole proprietorship in Kansas offers simplicity and flexibility for aspiring entrepreneurs. By understanding the qualifying factors, tax obligations, necessary paperwork, and other considerations, you can embark on your entrepreneurial journey with confidence. This article will serve as your guide.
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What is a sole proprietorship?
A sole proprietorship is a type of business structure where an individual operates and owns the business entirely. It is the most straightforward form of business ownership, and is appealing to entrepreneurs who want to set up a business quickly.
The owner assumes all rights, responsibilities as well as business profit, business debts, and all obligations of the business.
While a sole proprietorship is considered a “starter business entity,” you can change it to another type of business entity at any time, like an LLC.
Examples of a sole proprietorship
Sole proprietorships can be in any industry, but they’re usually small startups or even home-based businesses. Some examples include:
- Freelance writers
- Consultants
- Photographers
- Plumbers
- Small retail businesses
The flexibility and simplicity of a sole proprietorship make it an attractive option for many small business owners and solo entrepreneurs.
What qualifies your business as a sole proprietorship?
To qualify as a sole proprietorship in Kansas, you must be the sole owner of the business. This means that you have complete control over the business and all of its operations.
Additionally, you are personally liable and responsible for all aspects of the business, including its debts and legal liabilities.
Sole prop vs LLC
In a sole proprietorship, the owner’s personal assets are not separate from the business assets, which means that personal assets may be at risk in the event of business debts or legal liabilities. On the other hand, forming an LLC can provide limited liability protection, separating personal and business assets.
Who is it best for?
Sole proprietorships are ideal for individuals who want to start a small business with low startup costs and maintain full control over all business decisions. They are especially suitable for solo entrepreneurs, freelancers, and small business owners who don’t anticipate significant risks or the need for outside investors.
A startup can be formed as a sole proprietorship at first, but if you decide to expand your business, you can always get incorporated or form an LLC when the business is starting to grow, and you need more outside help.
However, with more owners, you are not going to have the same flexibility as before when it comes to business activity. But you will now have legal protection for your personal assets and extra guidance from shareholders and investors.
How to set up a sole proprietorship in Kansas
Setting up a sole proprietorship in Kansas is easy. Now that you know and understand how sole proprietorships work, here are the simple steps in starting a sole proprietorship:
Name your business
In Kansas, sole proprietorships can use the owner’s legal name or select a business name that may need to be registered with the county.
Using your own name
As a business owner, you can use your own name as a business name. You don’t need to do anything special to make this happen. It happens by default. All business income is reported on your personal taxes. Nothing is filed under a business name.
Setting up a DBA
In most states, if you’d like to create a business name, you can do so by filing a DBA, or Doing Business As, with the state. However, that’s not the case in Kansas. Instead, check in with your county clerk to see if you need to file paperwork with the local government.
If your county doesn’t register DBAs either, you may want to consider setting up an LLC so you can establish a business name. LLCs also offer personal liability protection, which can safeguard your assets if your company falls into debt or is sued.
How to Check if a Business Name is Taken
State licenses
Depending on the nature of your business, you will need specific permits to legally operate in Kansas. For example, if you are starting a barbershop or beauty salon or own a contracting business as an electrician or plumber, you will need specific licenses.
You can obtain the business license you need and learn more about licenses and permits by visiting the Kansas Government website Business Licenses page.
Consider getting an EIN
If you plan to open business bank accounts or hire employees, you’ll need an EIN, or employer Identification Number. As a new business owner, you can obtain this number quickly by answering a few online questions on the IRS website. You’ll be given a unique, nine-digit number instantly.
When you open a business bank account, your EIN is attached to the account and is generally a requirement to open an account. It’s also required by the IRS if you hire employees and manage a payroll.
Kansas taxes
As a sole proprietor in Kansas, your business income is treated as personal income for tax purposes. This means that you will report your business income and expenses on your personal income tax return using Schedule C, which is a form provided by the IRS.
You will be responsible for paying self-employment tax, which includes Social Security and Medicare taxes.
It’s essential to keep detailed records of your business income and expenses to accurately calculate your tax obligations.
The tax rate will depend on how well your business is doing, and in some cases, you will also need to obtain an EIN or employer identification number to ensure that you are paying for half of the employee’s tax obligations if you hire employees in the future.
Pros
- The owners gain complete control over the operations and decision-making of their business without consulting with investors or shareholders
- Setting up a sole prop is simple and it’s the quickest way to start a business
- The income tax and expenses of your sole proprietorship are simple because it is reported on your personal income tax return
- The costs of starting a sole proprietorship are lower than any other business structure
Cons
- Lack of continuity when the owner is no longer able to continue working
- The owner assumes all business obligations, putting their personal assets and money at risk
- The growth potential for sole proprietorships is limited
- Securing funding can be challenging because investors are not attracted to this business model
FAQs
Can you start a sole proprietorship in Kansas without acquiring a DBA?
Kansas does not register DBAs, so it’s not a step you need to take. You can start a sole proprietorship by engaging in any type of business activity, like making a business plan or selling products.
Can sole proprietorships in Kansas open a business bank account?
Yes, sole proprietorships in Kansas can open a business bank account. It is advisable to keep personal and business finances separate for better financial management and record-keeping. If you decide to open bank accounts, you’ll likely need an EIN, which you can get online from the IRS.
What are the advantages of opening a business bank account for sole proprietorships?
Opening a business bank account provides several benefits, including easier tracking of business expenses, simplified tax preparation, and improved credibility with clients and customers.
It can help owners of sole proprietorships separate their personal finances from business finances, allowing them to keep track of business growth and help them for tax purposes and opening credit lines for their business.
What is an employer identification number (EIN), and how can it help sole proprietorships in Kansas?
An Employer Identification Number (EIN) is a unique nine-digit number issued by the IRS to identify businesses for tax purposes. While not required for sole proprietorships with no employees, obtaining an EIN can provide benefits such as privacy, separating personal and business finances, and facilitating future business growth.
Can you hire employees as a sole proprietor in Kansas?
Yes, a sole proprietorship in Kansas can hire employees. However, it’s important to comply with all relevant employment laws and tax obligations, such as obtaining the necessary state and federal employer identification numbers, withholding payroll taxes, and adhering to employment regulations.
Are there business forms to file to register a sole proprietorship?
Unlike other business structures like corporations or limited liability companies (LLCs), there is no formal paperwork required to establish a sole proprietorship in Kansas.
Will an owner of a sole proprietorship pay business taxes?
As a sole proprietor, you won’t file or pay separate business taxes. Instead, you’ll file your business income on your personal tax return and make tax payments as you always do. If you don’t have an EIN, you’ll file your taxes with your social security number.
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