How to Start a Sole Proprietorship in Illinois

• Business name
• Business address
• Your name and address

Certain countries, like Cook County, will allow you to register your DBA online. However, you need to check with your specific county. You can find your local county’s contact information from the Illinois Association of County Clerks and Recorders.

Sole proprietors without employees don’t need to register for a federal tax ID number. They can use their Social Security Number (SSN) for tax purposes.

However, we recommend obtaining an EIN from the Internal Revenue Service (IRS) for several reasons:

• Opens up business banking opportunities: An EIN is often required to open a business bank account. This can help separate personal and business finances.
• Helps establish business credit: With an EIN, you can apply for business credit cards and loans separate from your credit. This can help you build credit for your business, which may be useful for future financial opportunities.
• Eases hiring process: If you plan on hiring employees in the future, you must have an EIN. It must report taxes and other documents to the IRS and set up payroll because it helps distinguish employees from employers.
• Enhances business privacy: An EIN can also replace your social security number in business paperwork, protecting you from identity theft and adding an extra layer of privacy.
• Prepares for business growth: Even though a sole proprietorship does not legally require an EIN, having one can simplify the transition if you decide to incorporate or restructure your business.

Depending on the nature of your business, you may need to obtain specific licenses, permits, and zoning clearances to operate legally in Illinois.

• Sole proprietors are not required to obtain a general business license.
• Visit the registrations, licenses, and permits page on the Illinois.gov website for more information on what licenses may apply to your business.
• The Illinois Department of Employment Security’s website has a section on licensed, certified, and registered occupations, and the Illinois Department of Financial and Professional Regulation provides detailed information about various professional licenses.
• Your local municipality may also have additional licensing requirements for sole proprietors; contact your local county clerk’s office for local information.

Additional state and local taxes

• All new businesses in Illinois must register for taxes with the Illinois Department of Revenue. This includes registering for the Retailers’ Occupation Tax, Sales Tax, and other applicable taxes based on your business activities.
• You can register online through the MyTax Illinois website or by completing the form REG-1.
• Additional state and local taxes may be needed depending on your business activities and location.

To maintain clear financial records and separate your personal and business finances, it is essential to open a dedicated business bank account.

Having a separate business bank account offers several advantages:

• Simplified bookkeeping and record-keeping: Separating your personal and business finances allows for easier tracking of income and expenses.
• Facilitates accurate tax reporting: With a dedicated business bank account, you can easily identify and report business-related transactions on your tax returns.
• Demonstrates professionalism: Having a separate bank account adds credibility to your business and enhances your professional image when dealing with clients, suppliers, and financial institutions.

As a sole proprietor, you shoulder complete responsibility for any business debts or obligations, making insurance an essential part of your business strategy. It safeguards you from unexpected claims or events. Consider exploring the following:

• General business liability insurance: This coverage handles allegations of property damage, bodily injury, or personal harm tied to your business operations.
• Professional liability insurance: Particularly vital for service providers, this insurance defends against allegations of perceived negligence, errors, or lapses in your services.

Maintaining detailed records is key to optimizing tax deductions and keeping your sole proprietorship’s finances in order. You should aim to record the following accurately:

• 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.

For certain small business owners and startups, forming an 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 fill in articles of organization and draft an operating agreement and annual reporting. Sole proprietorships involve less paperwork.
• Cost: Forming and maintaining an LLC has higher upfront and ongoing costs than a sole proprietorship.

• Illinois Secretary of State Business Search
• US Patent and Trademark Office trademark search
• Illinois Association of County Clerks and Recorders
• EIN application
• Form 1040
• Schedule C
• Schedule SE
• MyTax Illinois website
• Illinois registrations, licenses, and permits
• Illinois Department of Employment Security licensed occupations
• Illinois Department of Financial and Professional Regulation licenses