How to Start a Sole Proprietorship in Louisiana

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.

• Sole proprietors are not required to obtain a general business license.
• You can utilize the Louisiana Department of Revenue resources and the geauxBIZ website to determine licensing requirements for your sole proprietorship.
• The geauxBIZ website offers a comprehensive list of federal, state, and local licenses and permits required based on your business activities.
• You must check with local governments for additional requirements, such as building permits and zoning clearances.

Additional state and local taxes

• As well as federal income tax and self-employment tax, Louisiana sole proprietors may need to pay state extra business taxes if their taxable income exceeds $50,000.
• Sole proprietors may also need to register for and collect Louisiana sales tax if selling taxable goods or services.
• Some local governments impose taxes on sole proprietors operating a business within their jurisdictions. For example, New Orleans has a gross receipts tax on revenue over $50,000.

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, including:

• 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.

Keeping records is important for tax filing and managing your sole proprietorship’s financial affairs. You should make an effort to precisely track the following:

• Income
• Expenses
• Assets and liabilities
• Inventory
• Billing documents

Using bookkeeping software and spreadsheets or setting up a systematic method can help handle documents. Being as organized as possible will prove helpful when it’s time to file taxes, and it promotes the overall financial health of your business.

While a sole proprietorship might seem appealing due to its simplicity and few legal needs, it’s vital to consider possible downsides and look into other types of business structures, like a Limited Liability Company (LLC).

Here are some things to think about when choosing between a sole proprietorship and an LLC:

• Protection from debt: One big plus of starting an LLC is its protection from debt. As a sole proprietor, you are responsible for any money owed or legal claims against your business, which could put your own assets at risk. On the other hand, an LLC gives a clear divide between your personal and business assets, keeping your personal belongings safe from business debts.
• Looking professional: An LLC could make you look more professional in customers’ eyes. Starting an LLC shows more dedication to your business.
• Potential to grow: If you plan to make your business bigger or attract outside funding, an LLC gives you more room to grow than a sole proprietorship.
• Flexibility with taxes: One plus of a sole proprietorship is how simple it is when it comes to taxes. You usually report money made and money spent by your business on your personal tax return with a Schedule C. An LLC also offers flexibility with taxes, as it can be treated like a sole proprietorship, a general partnership, or a corporation for tax reasons.

It’s important to remember that starting an LLC involves more steps and legal needs, like filing Articles of Organization and paying filing fees.

• Louisiana business search 
• US Patent and Trademark Office
• Form 309
• Louisiana geauxBIZ website
• Apply for an EIN
• Form 1040
• Schedule C
• Schedule SE
• Louisiana Department of Revenue