How to Start a Sole Proprietorship in Nebraska
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Starting a sole proprietorship in Nebraska is a straightforward process that requires careful consideration and adherence to certain legal requirements. As a sole proprietor, you have complete control over your business, but it’s important to understand the implications and responsibilities of this business structure. This guide will take you through the steps to start a sole proprietorship in Nebraska, providing the necessary information to establish a solid foundation for your business.
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What is a sole proprietorship?
A sole proprietorship is the simplest type of business. It’s owned and run by a single person responsible for the business and its debts. They are simple to set up and, because of this, are popular with entrepreneurs and small business owners. Unlike business structures like Limited Liability Companies (LLCs) or corporations, there’s no legal divide between the business and the owner.
While a sole proprietorship offers simplicity and flexibility, it has some downsides. The main disadvantage is the lack of asset protection. As a sole proprietor, your belongings, like your car or house, are at risk if your business gets into debt or has any legal duties.
A step-by-step guide to starting your Nebraska sole proprietorship
Choose a business name
The first step is choosing a unique, brand-aligned business name. You have two options; operate under your legal name or file for a “doing business as” (DBA) name to use a trade name.
Filing a DBA name can give your business a more professional appearance to customers.
If you opt for a DBA name, follow these steps:
- Choose a business name: Select a memorable, professional-sounding name that reflects your brand identity. Perform thorough searches to verify the name is distinctive and not already in use.
- Check availability: Once you have chosen your name, you have to confirm your proposed name is not already taken by another business.
There are two key resources to check:
- The Nebraska Secretary of State business database to ensure no other business entity is using that exact name in Nebraska.
- The USPTO’s free trademark search tool to check for conflicts with existing trademarks.
- Check online availability: Verify the domain name is available for your website and claim matching social media handles. Having cohesive branding across platforms helps establish credibility.
- Register the business name: File an Application for Registration of Trade Name with the Nebraska Secretary of State; you can also file online. There is typically a small filing fee.
- Advertise your new business name: You must publish notice of your new trade name in a local Nebraska newspaper within 45 days of receiving it. After publishing, you must file the affidavit of publication with the Secretary of State within 45 days. You are responsible for obtaining the affidavit from the newspaper.
Obtain an (Employer Identification Number) EIN
As a sole proprietor with no employees, getting an EIN might not be necessary. Your Social Security Number (SSN) can be your tax ID number.
However, we do recommend getting one as there are many benefits:
- Business banking opportunities: An EIN allows you to open a business bank account separate from your finances, making tracking your business income and expenses easier.
- Establishing business credit: An EIN enables you to create a separate credit profile for your business, which would be useful if you apply for business loans or credit cards.
- Eases the hiring process: If you plan to hire employees in the future, having an EIN is necessary for reporting wages and fulfilling other tax obligations.
- Enhances business privacy: Using an EIN instead of your Social Security Number (SSN) on business-related documents can help protect your personal information.
- Prepares for business growth: If you plan to expand your business or change its structure, having an EIN will make the transition smoother.
You can apply for an EIN through the Internal Revenue Service (IRS) website. The process is free, and you will receive your EIN immediately after completing the online application.
You can apply for your EIN here.
Obtain Nebraska business licenses, permits, and zoning clearances
Nebraska does not generally require sole proprietors to obtain a general business license.
- Specific industries or activities may have additional licensing requirements.
- To determine the licenses and permits applicable to your business, you can consult the Nebraska.gov Business Licensing website.
- Nebraska’s useful one-stop portal is a simple way to filter for licenses and permits you may need to operate your business.
- At the federal level, certain businesses may require specialized federal licenses or permits. The U.S. Small Business Administration (SBA) lists federal agencies that issue such licenses and permits.
- You should also consider local regulations, building permits, and zoning laws that may apply to your business. Contact your local governments to inquire about any requirements in your area.
Register for taxes
As a sole proprietor in Nebraska, you must report all business income or losses on your personal tax return (Form 1040) using Schedule C. This is how your business profits will be taxed at the individual income tax rates.
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.
Access the most current versions of Form 1040, Schedule C, and Schedule SE on the IRS website.
Additional state and local taxes
- You must register your sole proprietorship with the Nebraska Department of Revenue (DOR) to fulfill your tax obligations.
- In Nebraska, common business taxes for sole proprietors include sales tax and use tax.
- Depending on your business activities, you may be liable for additional taxes. Use the one-stop portal to determine the taxes you must register for.
Additional steps
Once you have obtained your EIN, registered for any federal taxes, and obtained the correct licenses, you have completed all the steps needed to start your sole proprietorship. Below we will outline some extra steps to stay compliant and organized as a small business.
Open business bank accounts
Separating your personal and business finances is essential for keeping accurate records and protecting your personal assets. Consider the following:
- Business bank account: Opening a 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 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.
Get liability insurance
Because sole proprietors have no liability protection for all debts and obligations of the business, they should consider taking out an insurance plan. A business liability insurance policy can help offer financial protection against unforeseen events.
- General business liability insurance: This insurance covers property damage, bodily injury, and personal injury claims against your business.
- Professional liability insurance: Professional liability insurance can protect you from claims of negligence or errors if you provide professional services, such as consulting or advising.
Maintain business records
Nebraska requires new businesses to maintain complete and accurate accounting records. Detailed record-keeping helps maximize tax deductions and organize your finances.
We recommend keeping records of the following:
- Income earned
- Expenses
- Assets/liabilities
- Inventory
- Receipts
We recommend using bookkeeping software, spreadsheets, or an organized filing system to stay on top of your record-keeping. This will ensure you have all the necessary documentation come tax time.
Sole proprietorship vs. LLC
For some small businesses or startups, forming an LLC may be preferable to a sole proprietorship.
Here are some key advantages an LLC holds:
- Liability protection: LLCs legally separate your personal and business assets. Sole proprietorships do not.
- Credibility: An LLC’s structure appears more professional with customers.
- Growth potential: LLCs are better suited if you plan to expand your business.
- Tax flexibility: LLCs allow you to choose how your business is taxed. Sole proprietorships do not.
However, there are tradeoffs to consider:
- Complexity: LLCs require a certificate of organization and annual reporting. Sole proprietorships have less paperwork.
- Cost: LLC formation and maintenance fees are higher than a sole proprietorship.
FAQs
Do I need to register a DBA for my sole proprietorship in the state of Nebraska?
While not legally required, registering a DBA name for your sole proprietorship can provide certain benefits, such as using a professional business name that differs from your personal name.
Do I need a registered agent for my sole proprietorship?
No, sole proprietors do not need agents. However, it is mandated that all Nebraska LLCs need to have a registered agent.
Can I use my Social Security number for my sole proprietorship taxes?
As a sole proprietor, you can use your Social Security number for tax purposes.
What is the difference between a sole proprietorship and an LLC?
A sole proprietorship is the simplest type of business and offers simplicity and ease of operation but does not provide personal liability protection. An LLC offers personal liability protection, separating personal assets from business liabilities.
What is pass-through taxation?
“Pass-through taxation” refers to a system in which an entity’s profits (or losses) are passed directly to its owners and are only taxed at the individual level rather than at both the entity and individual levels.
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