How to Start a Sole Proprietorship in Nevada
Are you considering starting your own business in Nevada? Establishing a sole proprietorship is among the simplest and most popular options for budding new businesses. We will walk you through starting a sole proprietorship in Nevada, including choosing a business name, applying for necessary licenses and permits, registering for taxes, and more. Whether you’re a freelancer, startup, or small business owner, this step-by-step guide will give you all the information you need to get your sole proprietorship up and running.
What is a sole proprietorship?
A sole proprietorship is a simple type of business entity. 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. Unlike other business structures like 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 Nevada sole proprietorship
Choose a business name
The first step is to choose a business name. You have the option to use your legal name or create a trade name, also known as a “fictitious business name” or “doing business as” (DBA) name.
If you decide to use a trade name, it must be distinct from any other registered business name in the state.
Here are the steps to filing your DBA name:
- Choose a business name: Select a name that reflects your brand and is memorable to your target audience. Consider conducting a thorough search to ensure that another business does not already use the name you want.
- Check availability: Conduct a business search on the Nevada Secretary of State’s website and the United States Patent and Trademark Office’s Trademark Electronic Search System to check if the name you want is available and not trademarked by another entity.
- Check online availability: Make sure your business name is available as a .com domain for your website. Check related social media handles can be claimed. Locking down matching domains and usernames creates unity between your business name and online presence. Securing aligned domains and handles is key for a cohesive online brand.
- Register the business name: If you decide to use a trade name, you must file a Fictitious Firm Name certificate with the county clerk’s office where you plan to do business. Each county may have different requirements and filing fees, so contacting your county clerk for specific information is important.
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.
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 establish a 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 upon completing the online application.
You can apply for your EIN here.
Obtain Nevada business licenses, permits, and zoning clearances
- Nevada requires sole proprietors to obtain a Nevada state business license from the Secretary of State’s office. The annual renewal fee for the state business license is $200.
- You can apply for your state business license by filing a paper form or online using Silverflume.
- Depending on your business activities, you may need to apply for industry-specific licenses or permits from the Nevada Department of Business and Industry or other state agencies.
- Visit the Nevada Business Licensing Portal for more information on industry-specific licensing requirements.
- Some businesses in regulated industries, such as agriculture, alcohol, or transportation, may require federal licenses or permits. You can use the U.S. Small Business Administration’s License and Permit Tool to determine if your business needs a federal license.
- You may also need licenses or permits from your local municipality or county. Contact your local government offices to determine the specific requirements for your area.
Register for taxes
As a sole proprietor in Nevada, you report and pay taxes on your business profits. While sole proprietors do not pay a separate business tax, you are required to report your business income and expenses on your personal income tax return (form 1040) with an attached Schedule C.
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
- Sole proprietors in Nevada may be subject to various state taxes, such as the Modified Business Tax (MBT) for businesses with employees. Visit the Nevada Taxation Department’s website to register and learn about your tax obligations.
- If your business sells taxable goods or services, you need a sales tax permit from the Nevada Taxation Department. This will let you collect and remit sales tax on behalf of the state.
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 offers 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 protects you from claims of negligence or errors if you provide professional services, such as consulting or advising.
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 a Limited Liability Company (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 personal 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 general partnership, or a corporation for tax purposes.
It is important to note that forming an LLC involves additional steps and legal requirements, such as filing Articles of Organization and paying filing fees.
Can I change my business structure from a sole proprietorship to an LLC?
Yes, as your business grows and evolves, you can change the business structure from a sole proprietorship to an LLC.
Do I need a separate business bank account for my sole proprietorship?
While it is not legally required, a separate business bank account is highly recommended. It helps maintain clear financial records, simplifies tax reporting, and provides a professional image for your business.
How often do I need to renew my state business license?
In Nevada, the state business license for sole proprietors must be renewed annually.
Do I need to collect sales tax for my sole proprietorship in Nevada?
If your business sells taxable goods or services, you need to obtain a sales tax permit from the Nevada Taxation Department.
Can I hire employees as a sole proprietor in Nevada?
Yes, as a sole proprietor in Nevada, you can hire employees for your business.
Do I need a registered agent for my sole proprietorship?
Sole proprietors do not need registered agents. However, Nevada LLCs must have registered agents.
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