How to Start a Sole Proprietorship in Nebraska

Last updated: March 12th, 2024
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If you’re an aspiring entrepreneur looking to start your own business in Nebraska, one of the most common business structures you may consider is a sole proprietorship. In this article, we will guide you through the process of starting a sole proprietorship in Nebraska, covering key aspects such as business assets, incorporation, taxes, legal protections, and more.

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What is a sole proprietorship?

A sole proprietorship is an unincorporated business owned and operated by an individual. It is not like any other business structure. A sole proprietorship is the simplest and most common form of business entity, providing complete control and flexibility to the owner. 

Compared to a limited liability company (LLC) or S corporation (S corp), a sole proprietorship does not create a separate legal entity from its owner. This means that the business owner and the sole proprietorship are considered one and the same for legal and tax purposes. 

Examples of a sole proprietorship

Many businesses choose to operate as a sole proprietorship, and even some of the biggest businesses today started out as sole proprietorships. Some examples of a sole proprietorship are local businesses, such as local bakeries, grocery stores, freelance writers and designers, independent contractors, barbershops, tattoo artists, and a lot more.

What qualifies your business as a sole proprietorship?

A business that is solely owned and operated by one owner can qualify as a sole proprietorship. As a sole proprietor, you have complete control over your business and can be considered to be the business entity itself. 

With that said, and with no legal distinction between yourself as the owner of a sole proprietorship and the business, you have unlimited access to the business profits as well as business liability, which is one of the biggest advantages and disadvantages, depending on how well your business is going. 

Sole prop vs LLC

A sole prop is an unincorporated business that is owned by one person, with all assets and liabilities falling under the responsibility of that one person. On the other hand, an LLC can have multiple owners and limited liability and legal protection, meaning the personal assets of the owner are not at risk when the business gets in trouble with taxes, debts, etc.

Who is it best for?

A sole proprietorship is best for individuals who are looking to start a business without going through the long process of filing for incorporation. Without a lot of paperwork, these individuals who have a viable business idea can start almost immediately.

How to set up a sole proprietorship in Nebraska

If you think a sole proprietorship is best for your business and want to set up a sole proprietorship right now, it is quite easy. Here are some of the standard steps you need to take if you want to start a sole proprietorship in Nebraska:

Is there any formal paperwork needed to establish this type of business?

Because government regulations with sole proprietorships are limited and flexible, there is not very much paperwork involved in starting a sole proprietorship. However, depending on the type of business and other optional steps that could help your business advance, you may have to deal with some paperwork.

For example, if you want to use a business name or trade name, you have the flexibility to operate your business under a fictitious name or DBA, which does involve a filing fee and some paperwork.

Name your business

As a sole proprietor, you have the flexibility to operate your business under your own name or choose a trade name. If you opt for a trade name, also known as a “Doing Business As” (DBA) name, you’ll need to register it with the Nebraska Secretary of State’s office. This step ensures that your chosen business name is unique and not already in use by another business.

Using your own name

You can conduct business under your birth name. If you decide to do this, there is no formal paperwork to file. When you make sales, the income is automatically associated with your name, and you’ll be taxed via your personal income tax return.

Setting up a DBA

If you decide to do business under a separate name, you can apply for a DBA in Nebraska. Note that a DBA is not a separate entity from yourself, meaning there is still no legal distinction between yourself and the business. A DBA is simply a name that you can use to do business.  

To apply for a trade name in Nebraska, you must come up with a unique name and search the Nebraska business database on the Nebraska Secretary of State Website here to see if the name is not already taken. 

If the name is available, you can register your trade name by completing this application and mailing it to the Secretary of State. Or you can do it the easier way, which is filing online using this portal here. It costs $100 to file online and $110 if you do paper filing through the mail. 

Obtain state licenses

Before you commence business activity in Nebraska, you may need to obtain certain licenses or permits, depending on the type of business you plan to operate. You can check the Nebraska business licensing page here to learn more about the necessary business licenses and permits you need. 

Check with the Nebraska Department of Revenue and your local county or city government to determine the specific licenses and permits required for your business. Compliance with these regulations is crucial to avoid potential penalties or legal issues down the line.

Nebraska taxes

Instead of filing a separate income tax return for your business, as a sole proprietor, you’ll report your business income and expenses on your personal tax return. You will be using a Schedule C form to determine your business tax rate, which is included with your Form 1040. 

Additionally, you’ll need to pay self-employment tax, which covers Social Security and Medicare taxes. It’s crucial to stay organized and maintain accurate records of your business income and expenses to ensure compliance with IRS regulations. 

Pros

  • It is the cheapest way to start a business
  • The owner does not have to report to shareholders
  • You have complete control of the decision making
  • You have access to all business profits

Cons

  • You have unlimited liability for the business, including debts and lawsuits, putting your personal assets at risk
  • It is not very appealing to potential investors
  • There is little opportunity to make more money with this business model

FAQs

Are sole proprietorships required to obtain an EIN from the IRS?

While not required for sole proprietors who do not have employees, obtaining an Employer Identification Number (EIN) from the Internal Revenue Service (IRS) can be beneficial. An EIN is a unique identifier for your business and can be used for various purposes, such as opening a business bank account, filing certain tax forms, or establishing credit for your business.

Do you need a business plan to create a sole proprietorship in Nebraska?

Though not a legal requirement, developing a comprehensive business plan is highly recommended. A well-crafted business plan outlines your objectives, target market, competition, marketing strategies, financial projections, and more. It serves as a roadmap for your startup and helps you stay focused on your business goals.

How much taxes do sole proprietors need to pay the IRS?

As a sole proprietor, you’re responsible for making quarterly estimated tax payments to the IRS. These payments help you fulfill your tax obligations and avoid potential penalties for underpayment. Consulting with a tax professional can help you determine the appropriate amount to pay and ensure you meet all your tax obligations in a timely manner.

Are there legal protections for sole proprietorships in Nebraska?

Unlike other business structures that offer limited liability protections, sole proprietors have unlimited personal liability for business debts and legal obligations. This means that your personal assets, such as your home or savings, may be at risk in the event of a lawsuit or business failure. To mitigate this risk, you may want to explore other business structures that provide greater personal liability protection.

What licenses and permits are necessary to operate a sole proprietorship in Nebraska, and how do I obtain them?

The licenses and permits required for operating a sole proprietorship in Nebraska depend on the type of business activity you plan to engage in. It’s important to check with the Nebraska Department of Revenue and your local county or city government to identify the specific licenses and permits applicable to your business.

Do sole proprietors in Nebraska need a business bank account?

Opening a business bank account for your sole proprietorship in Nebraska is highly recommended. This allows you to keep your personal and business finances separate, making it easier to track business income and expenses. It also provides a clear distinction for tax purposes and helps in organizing your financial records.

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