How to Start a Sole Proprietorship in Missouri

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.

• Missouri does not require a general state business license.
• Even though various agencies typically issue licenses, you can ascertain most of your business license needs by heading to the Register My Business Page on the Missouri Business Portal.
• Visit the Missouri Division of Professional Registration to understand what professional licenses you may need for your business. Licenses can range from accountants to wrestlers, so make sure you have checked that your new business is compliant.
• Contact your local city or county office to ask about local business licenses.
• If your business involves activities regulated by federal agencies, such as selling alcohol or firearms, you may need to obtain specific federal licenses. The U.S. Small Business Administration’s website provides more information on federal permits and licenses.

Additional state and local taxes

• State taxes for your sole proprietorship are payable to the Missouri Department of Revenue. The good news is that the state’s Online Business Registration System simplifies figuring out your tax obligations.
• Once registered on this platform, it’ll guide you on your due taxes, such as sales tax, and methods to meet them.
• Some cities and counties in Missouri may 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.

Separating your personal and business finances is essential for keeping accurate records and protecting your assets. Consider the following:

• Business bank account: Opening a business bank account to manage your business finances separately will help you track income and expenses, simplify tax reporting, and can help establish credibility.
• Business credit card: A business credit card can also help keep personal and business expenses separate. This will make it easier to track business-related expenses and build credit for your business which can be useful further down the road.

Sole proprietors carry unlimited liability for business obligations, so insurance is critical. Policies can shield against unexpected claims or events. Consider:

• General business liability insurance: Covers claims of property damage, bodily harm, or personal injury resulting from your operations.
• Professional liability insurance: For service providers, it protects against alleged negligence, errors, or omissions in delivering your services.

Careful recordkeeping helps maximize tax deductions and organize your sole proprietorship’s finances. Be sure to track:

• Income
• Expenses
• Assets/liabilities
• Inventory
• Receipts

Using bookkeeping software, spreadsheets, or an organized system makes staying on top of documentation easier for tax filing and general financial health.

For some businesses, forming an LLC may better serve long-term goals than a sole proprietorship. LLCs offer advantages like:

• Liability protection: Your personal and business assets are legally distinct with an LLC structure. Your business is a legal entity that files taxes separately from the business owner.
• Credibility: The formal LLC designation can boost your professional image with customers.
• Growth potential: LLCs are well-suited if you aim to expand your current operations eventually.
• Tax flexibility: LLCs permit you to select how your business income is taxed.

However, LLCs also come with tradeoffs to weigh:

• Complexity: LLCs require drafting an operating agreement and annual reporting obligations. Sole proprietorships involve less paperwork.
• Cost: Forming and maintaining an LLC has higher upfront fees and ongoing costs.