How to Start a Sole Proprietorship in West Virginia
Starting a sole proprietorship in West Virginia is a simple process that still requires some careful planning and adherence to certain legal requirements. This guide will guide you through the steps to establish your sole proprietorship, including choosing a business name, obtaining necessary licenses and permits, registering for taxes, and more. Following these steps ensures that your sole proprietorship is properly and legally compliant.
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What is a sole proprietorship?
A sole proprietorship is the most straightforward type of business you can establish. It is popular with startups and entrepreneurs for its ease of setup. The business and the owner are seen as the same legal entity in a sole proprietorship.
This means that you have complete control over your business, but you hold personal liability for any debts or obligations of the business.
A step-by-step guide to starting your West Virginia sole proprietorship
Register for taxes
As a West Virginia sole proprietor, you’ll report your business’s profits and losses on your personal tax return (Form 1040). Attach Schedule C to list your sole proprietorship’s income and losses.
You’ll also owe self-employment tax for Social Security and Medicare, calculated on Schedule SE.
Access the most current versions of Form 1040, Schedule C, and Schedule SE from the Internal Revenue Service (IRS) here.
Access the most current versions of Form 1040, Schedule C, and Schedule SE from the Internal Revenue Service (IRS) here.
Additional state and local taxes
- If you’re starting a sole proprietorship in West Virginia, you must get a state business registration certificate. This requirement applies to all business structures.
- The WV One Stop Business Portal has a handy Business Startup Wizard that will guide you through registering step-by-step.
- You can also complete the West Virginia State Tax Department business registration certificate form and submit it by hand.
- Depending on your business activities, you may have additional business tax obligations at the state and local levels. For example, if you sell goods or services subject to sales tax, you must register for a West Virginia sales tax permit.
Choose a business name
In most states, you can register your new business name before you register with the tax department. However, in West Virginia, you must complete your business registration with the West Virginia State Tax Department before naming your business.
By default, sole proprietors must use their name for their business. If you want to operate under a name other than yours, you must file a “Doing Business As” (DBA).
Here is how you file a DBA name:
- Choose a business name: Think of a business name that describes what you do and is memorable. A good business name can be an early marketing tool and help build a brand and customer base.
- 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 West Virginia Business Entity Search from the West Virginia Secretary of State to confirm that your name is available to be used in the state.
- The Electronic Search System from the US Patent and Trademark Office protects against trademark overlaps and potential infringements on intellectual property.
- Check online availability: Ensure the online visibility of your business by checking the availability of your desired name as a .com domain and on various social media platforms. This strategy boosts your brand’s recognition and makes it more accessible to potential customers in the digital realm.
- Register the business name: To register your DBA, you must complete the Trade Name Registration form (Form TN-1) or file online with the WV One Stop Business Portal. There is no filing fee for registering a trade name for a sole proprietorship in West Virginia. However, you can also pay for an expedited service.
Most business types can reserve a name with the Secretary of State, but general partnerships and sole proprietors cannot.
Obtain an (Employer Identification Number) EIN
While obtaining an Employer Identification Number (EIN) is not mandatory for sole proprietors without employees, it is recommended.
An EIN is a nine-digit number issued by the Internal Revenue Service (IRS). It serves as a unique identifier for your business and can provide several benefits:
- Opens up business banking opportunities: Having an EIN lets you open a business bank account separate from your accounts. This separation helps you maintain clear financial records and simplifies tax filing.
- Helps establish business credit: With an EIN, you can start building a separate credit history for your business, which may be beneficial when applying for loans or lines of credit.
- Eases the hiring process: If you plan to expand your sole proprietorship and hire employees, having an EIN is necessary for payroll tax reporting and other employment-related requirements.
- Enhances business privacy: Using an EIN instead of your Social Security Number (SSN) on invoices and contracts adds an extra layer of privacy and identity protection.
- Prepares for business growth: If you have plans to grow your business and potentially convert it into a different business entity, such as a Limited Liability Company (LLC) or a corporation, having an EIN is a crucial step in the transition process.
Register through the IRS website or click here to obtain an EIN.
Obtain West Virginia business licenses, permits, and zoning clearances
- While no general business license requirement exists for sole proprietors in West Virginia, all business types must complete a business registration application.
- West Virginia has specific licensing requirements for certain professions and industries. The West Virginia One Stop Business Portal provides a comprehensive list of state licenses and permits.
- In addition to state licenses, some cities or counties in West Virginia may have their own licensing requirements. It’s important to check with your local government to determine if additional licenses or permits are needed for your location.
- Depending on your business activities, you may need a federal license or permit. Certain industries, such as aviation, firearms, or alcohol production, require federal licenses. You can use the US Small Business Administration’s License and Permit Tool to identify if your business requires a federal license.
Additional steps
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 will help you move towards this:
Setting up a business bank account comes with a host of benefits, such as:
- 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 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
West Virginia 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.
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 filing in articles of organization and annual reports and hiring a registered agent. Sole proprietorships have less paperwork.
- Cost: LLC formation and maintenance fees are higher than a sole proprietorship.
Tips:
- Consult a tax professional to decide which structure best fits your business.
- Weigh liability protection vs. simplicity based on your goals and risk factors.
FAQs
Can I change from a sole proprietorship to an LLC at a later stage in West Virginia?
You can move from a sole proprietorship to a West Virginia LLC. This might require a new EIN and business name registration and adherence to LLC-specific compliance requirements.
How do I find out which local licenses or permits I might need in the state of West Virginia?
You should check with your local government office or Chamber of Commerce to understand specific licenses or permits that might be required in your city or county.
Can I have employees as a sole proprietor in West Virginia?
Yes, you can have employees as a sole proprietor in West Virginia. As the business owner, you are responsible for withholding and paying all applicable federal, state, and local income taxes and Social Security, Medicare, and unemployment taxes for your employees. West Virginia state law requires employers to obtain workers’ compensation insurance for their employees in case of workplace injury.
Are there any restrictions on the kind of business name I can choose in West Virginia?
Your chosen business name must be unique and not infringe on any existing trademarks. Additionally, the name should not be misleading or imply that the business is a different type than it is.
How do I close my sole proprietorship in West Virginia if I decide to cease business?
Closing a sole proprietorship involves settling all business debts, closing business bank accounts, canceling licenses or permits, and informing tax agencies that you’re no longer in business. Also, you should cancel your DBA or trade name if applicable.
What does pass-through taxation mean?
Pass-through taxation means a business’s income passes to the owners’ tax returns. The business itself does not pay taxes. Instead, the owners report business profits and losses on their returns and pay tax at their income tax rates. This avoids double taxation.
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