How to Start a Sole Proprietorship in Kansas
Launching a sole proprietorship in Kansas is straightforward—it just takes a few key steps. This guide will outline everything you need to do, from choosing a business name all the way through to opening a bank account.
What is a sole proprietorship?
A sole proprietorship is the most straightforward type of business to set up. They are popular amongst startups and entrepreneurs since they have minimal legal requirements compared to other structures like Limited Liability Companies (LLCs) and corporations. Setting up a sole proprietorship lets you quickly get your business off the ground by skipping complex registration formalities.
The business and the owner are considered the same legal entity in a sole proprietorship. As the sole owner, you have total control over the business decisions and operations. A downside is that you also personally hold unlimited liability for any financial or legal responsibilities incurred by the business.
A step-by-step guide to starting your Kansas sole proprietorship
Choose a business name
By default, sole proprietors must use their own name for their business. If you wish to use a different name, you must file a “doing business as” (DBA). Many individuals prefer to use a trade name or DBA name for their business as it can seem more professional.
Here are the steps to filing your DBA:
- Choose a business name: Brainstorm different names that reflect your business’s values, products, or services. Consider using words that are relevant to your industry or target market.
- Check availability: Once you have thought of a few potential names, checking their availability is crucial.
Use these online tools to help:
- The Kansas Secretary of State’s Business Entity Search Station checks that a different Kansas business does not already use the name.
- The US Patent and Trademark Office’s Electronic Search System ensures you are not infringing on trademarks or intellectual property.
- Check online availability: In today’s digital age, it’s essential to have an online presence. Registering a domain name that matches your business name can help customers find and recognize your brand easily.
- Register the business name: Kansas has unique rules for business under a different name. Most states require registering a DBA name with the state government if you use a business name that differs from your legal name. Kansas does not have this statewide DBA registration requirement. Check with your local city and county governments – some may have their own local DBA registration rules you’ll need to follow.
If you want to protect your business name or establish legal rights, consider registering it as a trademark.
Obtain an (Employer Identification Number) EIN
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.
You can apply for your EIN here.
Obtain Kansas business licenses, permits, and zoning clearances
- 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.
Register for taxes
Sole proprietors report their business income on their personal tax returns (Form 1040) using Schedule C. Make sure to keep thorough records of your business income and expenses to calculate your taxable income accurately.
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.
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.
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 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.
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 type of 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
Keeping records is essential for maximizing tax deductions and organizing your sole proprietorship’s financial matters. Ensure you document the following:
- Assets and liabilities
Utilizing accounting software, spreadsheets, or setting up an organized method can simplify the task of paperwork management.
Sole proprietorship vs. LLC
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.
Useful resources to help start your sole proprietorship in Kansas
- 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
Do I need to register my sole proprietorship in Kansas?
No, there is no formal registration process for sole proprietorships in the state of Kansas.
Do I need a registered agent for my sole proprietorship?
Sole proprietors do not need registered agents. However, all Kansas LLCs are mandated to have registered agents.
Can I change my sole proprietorship to LLC in the future?
Yes, if you choose to change your business structure from a sole proprietorship to an LLC, you can do so in the future. However, the process involves multiple steps, including filing formation documents and updating various government agencies and banking institutions.
Can I hire employees as a sole proprietor?
Yes, as a sole proprietor, you can hire employees. However, hiring employees may require additional legal obligations such as employment taxes.
Do I need a business bank account for my sole proprietorship?
While not legally required, having a dedicated business bank account for your sole proprietorship is highly recommended. It helps maintain separation between personal and business finances and simplifies record-keeping and tax reporting.
Can I deduct business expenses as a sole proprietor?
As a sole proprietor, you can deduct necessary business expenses from your taxable income. Keep thorough records of your business expenses and consult with a tax professional to ensure you comply with tax laws.
Do I need any special business permits or licenses to operate a sole proprietorship in Kansas?
The permits and licenses required for a sole proprietorship depend on your industry and location. Some common ones to consider are local business licenses, sales tax permits, and industry-specific licenses for food service, childcare, agriculture, etc.
What paperwork/records should I maintain for my Kansas sole proprietorship?
As a sole proprietor, you must keep accurate records of all business income, expenses, assets/liabilities, and inventory. This includes receipts, invoices, bank statements, contracts, tax documents, and other financial records. Using accounting software can help organize and track everything.
Find out how to start a sole proprietorship
Click on your state below to get started.