How to Start a Sole Proprietorship in Nevada
Ready to take matters into your own hands and start a business in the Silver State? While you have your choice of business schemas, a sole proprietorship is the easiest to start out with. Read on to learn about what you need to do to start a sole proprietorship in the state of Nevada.
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What is a sole proprietorship?
A sole proprietorship is a business schema that has a single owner. This owner is indistinguishable from the business for income tax purposes, and sometimes they even share a name.
Examples of a sole proprietorship
- A freelancer of any type, whether you are working in writing, editing, or social media management.
- An artist creating items to put up for sale on Etsy.
- Someone growing flowers to sell in a local farmer’s market.
- An individual who opens a small shop in town to sell clothing items or coffee.
What qualifies your business as a sole proprietorship?
A business is considered a sole proprietorship as long as it only has one owner and that owner is performing business activities. Even if you haven’t made money yet, doing certain activities with the intent of making money is considered a sole proprietorship in Nevada.
Sole prop vs LLC
A sole proprietorship is a business that has one owner who has complete control over the company. The owner and the business are one and the same, with the owner taking full responsibility for the assets, debts, and liabilities of the company.
An LLC is a limited liability company or a business structure where the owner of the business is legally separate from the business entity. This structure limits personal liability but does require paperwork to be filed in advance.
Who is it best for?
Sole proprietorships are best for entrepreneurs who are beginning a new business as a side hustle or are looking to try a small business idea that is considered low-risk. Sole proprietorships offer unlimited growth, and because of their ease of opening, they make starting a business seamlessly.
A sole proprietorship should not be used by someone who is in a risky industry or starting a business that needs a lot of licenses. While a sole proprietorship can be converted to an LLC later, it might already be too late if the business has accumulated debts that must be paid by the sole proprietor.
How to set up a sole proprietorship in Nevada
Are you convinced that a sole proprietorship is the best business structure for you? There are some things you need to do before you begin, such as naming your business and setting up your DBA. Read on to learn more.
Is there any formal paperwork filed to establish this type of business?
Unlike other business setups, like an LLC or general partnership, you don’t need to fill out or file any incorporation paperwork to begin your sole proprietorship. The minute you begin any sort of business activity, like writing a business plan or making a sale, you are considered a sole proprietor.
Name your business
In Nevada, you have a few different options for naming your business. You can choose a name; otherwise, your legal name will automatically be used as your business name. There are pros and cons of both using your name and picking a different name for your business.
Using your own name
As mentioned above, if you don’t pick a name for your business, your legal name will automatically be used. If you choose to use your own name, it is a bit easier as there is no paperwork to file to do so.
However, you must use your legal name exactly as it appears on your birth certificate. If you only want to use part of your name, or a nickname, or add to your name, then you will need a DBA. A DBA is a ‘doing business as’ name though it can also be called an assumed name or a fictitious firm name in Nevada.
Setting up a DBA
To set up a DBA in Nevada, you will need to file a document with the County Recorder or Clerk in the area where your business is based. As of now, the exact documents you need will vary from county to county, so you will need to call your county clerk for more information.
How to Check if a Business Name is Taken
Obtain state licenses
In the state of Nevada, all businesses are required to obtain a Nevada state business license, even if you are a sole proprietor. You can find the documents needed to obtain a business license on the Nevada Silverflume Business Website.
Beyond the basic business license, depending on your type of business, there may be additional licenses that your business requires. For example, any businesses that serve alcohol will require a liquor license.
Plus, any business required to collect sales tax will need a sales tax license acquired from the Nevada Department of Taxation.
You can find all the information about the state license and additional local licensing requirements on the Nevada Secretary of State Website. Businesses operating in Las Vegas will require lots of additional licenses due to employee licensing requirements.
Get an EIN
Obtaining an EIN or employer identification number is optional when you have a sole proprietorship, but it is recommended to obtain an EIN if you expect to hire employees in the future.
If you don’t get an EIN and hire people in the future, your SSN or social security number will be used to file taxes, and this can compromise your identity.
EINs can also be referred to as a federal tax ID number or a FEIN, and you can request one directly from the IRS.
Open a business bank account
It is recommended to open a business bank account to keep your personal and your business funds separate, but it is not required for the operation of a sole proprietorship. Opening a business bank account will not limit the unlimited liability you are exposed to as a sole proprietorship; it is mostly for convenience.
Pros
- Filing business taxes is easy because it is almost the same as filing personal taxes.
- Very little paperwork is required to get your business going.
- Anyone can open a sole proprietorship
- The business owner retains full control of all business activities.
- A sole proprietor can hire help when needed.
- Business profit taxes are paid at your personal tax rate.
Cons
- As the owner of a sole proprietorship, you have legal liability for all business debts, which could be immense if the business fails.
- You don’t qualify for government business grants.
- You likely don’t qualify for government programs like Medicare.
- You have to use your legal name unless you file for an assumed name or fictitious firm name.
- While taxes are easier to file, you will still pay a self-employment tax in addition to your personal income tax.
- It might be difficult to separate your personal financial situation from that of your business.
FAQs
How much does it cost to open a sole proprietorship in Nevada?
A business license is required for a sole proprietorship in Nevada. The good news is this license only has a filing fee of about $20. The details about these documents can be found on the Nevada Secretary of State’s website.
Do you need a business license to be a sole proprietor in Nevada?
A business license is required to become a sole proprietorship in Nevada. Some businesses, however, qualify for an exemption. If your business is exempt, you must have an exemption certificate in hand prior to operating as a business.
Is a sole proprietorship the same as an LLC in Nevada?
Although both LLCs and sole proprietorships require a business license, LLCs are still separate from a sole proprietorships, and additional paperwork must be filed to open one. LLCs offer additional protection for your personal assets.
Does a sole proprietor need to file articles of organization in Nevada?
A sole proprietor doesn’t need to file any articles or organization or incorporation documents in the state of Nevada. They do need to file for a business license, however, and possibly a sales tax license to be legal.
Are self-employed people in Nevada required to collect sales tax?
In Nevada, if you are selling goods, you must collect sales taxes. There are a few exemptions to this, such as nonprofits and those who are in the resale industry. You can find all the information about sales tax on the State of Nevada tax website.
Do sole proprietors need a business license in Nevada?
Yes. In Nevada, a business license is required for your business to make sales. While you can begin business activities before acquiring a license, before you can accept payment legally, you need to have a Nevada Business License.
How does a sole proprietorship pay taxes?
Filing taxes as a sole proprietor is simple. You will file your personal tax return for your federal taxes as you normally would, but you would include a form called a Schedule C.
This Schedule C form will summarize your business profits and losses for the IRS or internal revenue service. Nevada does not have state income taxes, so you will just file federally.
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