How to Start a Sole Proprietorship in Idaho
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Starting a sole proprietorship in Idaho is a straightforward process allowing individuals to operate their businesses without formal registration. Important steps and considerations remain to ensure your business is legally compliant and set up for success. This guide will take you through starting a sole proprietorship in Idaho, from choosing a business name to obtaining the necessary licenses and permits. Whether you are a craft seller, a freelancer, or a small business owner, this guide will provide the essential information to establish and grow your sole proprietorship in Idaho.
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What is a sole proprietorship?
A sole proprietorship provides the most basic business structure – it is owned and managed entirely by one person responsible for its debts and liabilities. The simplicity of set-up makes sole proprietorships a go-to choice for many new business owners going solo. Unlike Limited Liability Companies (LLCs) and corporations, there is no legal distinction between a sole proprietor’s personal and business assets.
While this simplicity can be advantageous, sole proprietorships also have drawbacks. Most notably, they offer entrepreneurs little protection for the owner’s assets. Weighing these protections and limitations is important in deciding if a sole proprietorship is the right structure for your business.
A step-by-step guide to starting your Idaho sole proprietorship
Choose a business name
If you plan to operate your sole proprietorship under a name other than your legal name, you must file a “Doing Business As” (DBA), also known as an Assumed Business Name.
Registering a DBA allows you to use a business name different from yours. While not legally required for sole proprietors in Idaho, registering a DBA can provide several benefits, such as establishing a professional image and facilitating the opening of a business bank account.
To register a DBA in Idaho, follow the following steps:
- Choose a business name: Choose a unique and memorable business name. Your business name is an important aspect of your brand identity and can significantly attract customers.
- Check availability: Before finalizing your business name, ensuring another business in Idaho does not already use it is crucial.
There are two key resources to check:
- Check the availability of your desired business name by conducting a name search on the Idaho Secretary of State website.
- The US Patent and Trademark Office lets you search their national trademark database. Review federal trademarks thoroughly to ensure your name does not infringe on trademarks or intellectual property.
- Check online availability: To prepare for future marketing efforts, it’s wise to check that the web domain and social media handles you want for your business are currently available for purchase and registration. Owning your brand’s online real estate early allows you to build an online presence and connect with customers as you grow.
- Register the business name: To register your business’s trade name officially, you need to complete a Certificate of Assumed Business Name form, which can be found on the Secretary of State’s website. You can submit the certificate digitally, through the Sosbiz website, or by mail. Registering a DBA name incurs a filing fee.
It’s important to note that filing a Certificate of Assumed Business Name does not provide legal protection or rights to the name. It simply registers your DBA name and ensures that another business in Idaho does not already use it.
Obtain an (Employer Identification Number) EIN
Sole proprietors without staff can use their Social Security Number (SSN) for federal tax purposes rather than registering for an Employer Identification Number (EIN).
However, there are several advantages to proactively obtaining an EIN from the Internal Revenue Service (IRS) as a sole proprietor:
- Opens up business banking opportunities: An EIN facilitates the opening of dedicated business bank accounts, credit cards, and loans to keep finances separate from your funds.
- Helps establish business credit: Applying for credit under your new EIN rather than SSN allows you to build credit tied to your company’s financial profile.
- Eases hiring process: Obtaining an EIN is beneficial for adding employees in the future, as it distinguishes your business from your tax documents.
- Enhances business privacy: Your EIN replaces using your SSN on business paperwork, protecting your identity and personal information.
- Prepares for business growth: An established EIN can streamline transitions if you incorporate or change structure as your business grows.
You can apply for your EIN here.
Obtain Idaho business licenses, permits, and zoning clearances
- Sole proprietors in Idaho are not required to obtain a general state business license.
- Depending on your type of business, you may be required to apply for additional licenses.
- Idaho’s helpful Business Wizard website can help you determine which business licenses you need.
- You can file and renew licenses on the Division of Occupational and Professional Licenses website. There are some common licenses sole proprietors in Idaho may need to operate for example:
- Food establishment/restaurant license – Required if selling or serving food or beverages. Issued by local health departments.
- Liquor license – Needed to sell beer, wine, or spirits. Acquired through the Idaho State Police.
- Idaho Outfitters and Guides license – Required for outfitting services like hunting, fishing, or rafting. Issued by Idaho Outfitters and Guides Board.
- Be sure to check with your local government to see if you need any additional licenses or permits. Certain cities, such as Boise and Meridian, may have their own zoning rules.
Register for taxes
Sole proprietors report business income and expenses on their personal tax returns using Schedule C (Form 1040).
As a self-employed sole proprietor, you owe self-employment tax contributions for Social Security and Medicare, which you can calculate and report using Schedule SE.
Access the most current versions of Form 1040, Schedule C, and Schedule SE on the IRS website.
Additional state and local taxes
- In addition to federal taxes, sole proprietors in Idaho may be subject to state and local taxes. These taxes can vary depending on your business activities and location. Researching and understanding the tax requirements for your sole proprietorship in Idaho is important.
- Registering with the Idaho State Tax Commission taxpayer access point to obtain the necessary permits and licenses for sales and use tax.
- Consulting with a tax professional or using online resources to navigate the complexity of state and local tax requirements.
Additional steps
After securing your EIN, signing up for federal taxes, and getting the necessary licenses, you’ve crossed off all the big tasks required to launch your sole proprietorship.
Next, we’ll share some additional steps to help keep your small business aligned with rules and organized.
Open business bank accounts
Keeping your personal assets safe and creating segregation with your business finances is vital. Opening a business bank account will help you move towards this:
Setting up a business bank account comes with a host of benefits, like:
- Simplified bookkeeping and record-keeping: When your personal and business finances don’t mix, keeping track of what you earn and spend is much simpler.
- Facilitates accurate tax reporting: If you have a bank account just for your business, spotting and reporting business transactions on your tax filings becomes much easier.
- Demonstrates professionalism: A business-only bank account gives your business a professional look and feel, boosting your credibility with customers, suppliers, and banks.
Get liability insurance
Being a sole proprietor means that you alone are responsible for any business debts, which makes insurance a key piece of your business strategy. This can help guard you against unexpected claims or incidents. Here’s what we suggest you consider:
- General business liability insurance: This policy takes care of claims related to damage to property, physical injury, or personal harm that might be connected to your business.
- Professional liability insurance: This insurance is vital if your business provides services. It helps protect you from alleged supposed negligence, errors, or oversights in your services.
Maintain business records
Maintaining detailed records is key to optimizing tax deductions and keeping your sole proprietorship’s finances in order. You should aim to accurately record the following:
- Earnings
- Costs
- Assets and debts
- Stock
- Invoices
Bookkeeping software, spreadsheets, or a structured system can help manage documents. This will be beneficial for tax submission and maintaining the overall financial well-being of your business.
Sole proprietorship vs. LLC
For certain small business owners and startups, forming a limited liability company (LLC) may be better than operating as a sole proprietorship. LLCs have some key advantages:
- Liability protection: LLCs legally separate your personal and business assets, which sole proprietorships do not.
- Credibility: The formal LLC structure appears more professional to customers.
- Growth potential: LLCs are well-suited if you aim to expand your business over time.
- Tax flexibility: LLCs allow you to choose how your business income is taxed.
However, LLCs also have some downsides:
- Complexity: LLCs require you to complete a variety of legal documents. Sole proprietorships involve less paperwork.
- Cost: Forming and maintaining an LLC has higher upfront and ongoing costs than a sole proprietorship.
Useful resources to help start your sole proprietorship in Idaho
FAQs
Do I need to register my sole proprietorship with the Idaho Secretary of State?
No, there is no formal business registration process for sole proprietorships in the state of Idaho. You may need to file a DBA to operate under a business name different from your legal name.
Do I need a registered agent for my sole proprietorship?
No, a sole proprietorship does not need one. However, all Idaho LLCs need a registered agent.
Can I hire employees as a sole proprietor in Idaho?
Yes, sole proprietors can hire employees. If you plan to hire employees, you must obtain a federal tax id number from the IRS and comply with employment laws and regulations.
Can I change my Idaho sole proprietorship into an Idaho LLC?
Yes, you can change your Idaho sole proprietorship into an Idaho LLC. Simply file a certificate of organization with the Idaho Secretary of State to form your LLC. You’ll need to get an EIN, open LLC banking accounts, transfer assets, and update contracts. Your LLC will be a separate legal entity providing liability protection.
Do I need to renew my DBA certificate?
DBA certificates in Idaho do not expire and generally do not require renewal. However, periodically reviewing and updating your business information as needed is always a good practice.
What business taxes does my Idaho sole proprietorship need to pay?
You must pay federal income tax on your business’s net income using Schedule C and your personal tax return. You’ll pay income tax at Idaho’s rates for state taxes. You may need to collect and remit sales tax if selling taxable goods or services.
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