How to Start a Sole Proprietorship in Kansas

An Employer Identification Number (EIN)is a unique 9-digit number identifying a business entity. The Internal Revenue Service (IRS) issues EINs as a federal tax ID number.

Sole proprietors can use their Social Security Number (SSN) instead of an EIN for federal tax purposes.

There are many benefits to obtaining an EIN:

• Opens up business banking opportunities: Obtaining an EIN enables opening a dedicated business bank account, credit card, and financing.
• Helps establish business credit: An EIN allows building business credit rather than relying solely on personal credit history.
• Eases the hiring process: Getting an EIN distinguishes the business finances and tax documentation from the owner’s finances.
• Enhances business privacy: Using an EIN instead of an SSN on business documents enhances privacy protections.
• Prepares for business growth: An established EIN can simplify future transitions to more structured business entities.

• Kansas does not have a general business license requirement for sole proprietors. 
• Depending on your business activities and location, you may be required to obtain additional licenses.
• Visit the KS Biz website for a comprehensive list of licenses and permits required in Kansas.
• For geology, architecture, and engineering professionals, visit the Kansas State Board of Technical Professions for information on specific permits.
• Kansas also offers starter kits to help new business owners in auto repair and contracting, amongst others, understand permits and licenses.
• If your business engages in activities regulated by federal agencies, such as selling alcohol, firearms, or aviation services, you may need to obtain specific federal licenses. Visit the U.S. Small Business Administration’s website for more federal permits and license information.

Additional state and local taxes

• Kansas does not have a state income tax for individuals.
• The Kansas Department of Revenue provides helpful information on business taxation requirements on its website. You can also register through the Kansas Business Center to pay your taxes online, a convenient option for managing your business’s tax compliance.
• Some cities and counties in Kansas impose local taxes, such as local sales or business taxes. Contact your local government authorities to determine if you have any additional tax obligations at the local level.

Keeping your personal assets safe and creating segregation with your business finances is vital. Opening a dedicated business bank account helps 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.

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 type of insurance is vital if your business provides services. It helps protect you from alleged supposed negligence, errors, or oversights in your services.

Keeping records is essential for maximizing tax deductions and organizing your sole proprietorship’s financial matters. Ensure you document the following:

• Income
• Expenses
• Assets and liabilities
• Inventory
• Receipts

Utilizing accounting software, spreadsheets, or setting up an organized method can simplify the task of paperwork management.

While a sole proprietorship may seem attractive due to its simplicity and minimal legal requirements, it is important to consider the potential downsides and explore alternative business structures, such as an LLC.

Here are some factors to consider when deciding between a sole proprietorship and an LLC:

• Liability protection: One of the significant advantages of forming an LLC is its limited liability protection. Sole proprietors are liable for any debts or legal claims against your business, which means your assets are at risk. In contrast, an LLC provides a legal separation between your personal and business assets, shielding your assets from business liabilities.
• Credibility: An LLC may enhance your credibility in the eyes of clients, partners, and potential investors. Forming an LLC demonstrates more professionalism and commitment to your business.
• Growth potential: If you plan to expand your business or attract external funding, an LLC offers more flexibility and growth potential than a sole proprietorship.
• Tax flexibility: One of the advantages of a sole proprietorship is its simplicity in taxation. You normally report business income and expenses on your personal tax return through a Schedule C. On the other hand, an LLC also offers tax flexibility, as it can be treated as a sole proprietorship, a corporation, or a general partnership for tax purposes.

It is important to note that forming an LLC involves additional steps and legal requirements, such as filing Articles of Organization, annual reports, and paying filing fees.

• Kansas Secretary of State’s Business Entity Search Station 
• The US Patent and Trademark Office’s Trademark Electronic Search System
• EIN application
• KS Biz
• Kansas State Board of Technical Professions
• Kansas starter kits
• U.S. Small Business Administration
• Form 1040
• Schedule C
• Schedule SE
• Kansas Department of Revenue
• Kansas Business Center
• Kansas list of licenses and permits