How to Start a Sole Proprietorship in Wyoming
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Sole proprietorships are an excellent option for individuals looking to start businesses in Wyoming. This simple business structure allows you to be the sole owner and gives you complete control over your business operations and decisions. If you’re considering launching a sole proprietorship in Wyoming, this guide covers everything you need to know to get started. We’ll walk through the essential steps, such as obtaining licenses and permits, registering your business name, understanding tax obligations, and meeting other legal and regulatory requirements in Wyoming.
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What is a sole proprietorship?
A sole proprietorship provides the most basic business structure – it is owned and managed entirely by one person responsible for its debts and liabilities. The simplicity of set-up makes sole proprietorships a go-to choice for entrepreneurs and startups. Unlike Limited Liability Companies (LLCs) and corporations, there is no legal distinction between a sole proprietor’s personal and business assets.
A step-by-step guide to starting your Wyoming sole proprietorship
Choose a business name
Choosing a business name is the first step in starting your sole proprietorship in Wyoming. While you can operate under your legal name, you may want to use a separate trade name or “doing business as” (DBA) name.
Here is how to establish your new business name in Wyoming:
- Choose a business name: Brainstorm creative names that describe your business and appeal to customers. Incorporate relevant keywords that connect with your industry and target market.
- Check availability: Verify the unique name you select is not already in use.
There are two key resources to check:
- Search the Wyoming Secretary of State business database to ensure another business does not use the name.
- Use the US Patent and Trademark Office’s Electronic Search System to confirm that you are not infringing on trademarks or intellectual property.
- Check online availability: Validate that your chosen business name is available as a .com domain name and for social media handles like Facebook, Instagram, and Twitter. Registering matching website and social media names connects your business identity across online platforms. This builds brand recognition and makes it easier for customers to find and remember you digitally.
- Register the business name: File an Application for Reservation of Trade Name with the Wyoming Secretary of State to register your DBA name officially. There is a filing fee that you must include when you submit your form. The forms cannot be returned by email and must be mailed in. Your trade name is valid for ten years.
In Wyoming, you must use your trade name before filing your application.
Obtain an (Employer Identification Number) EIN
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 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 personal 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.
You can apply for your EIN here.
Register for taxes
As a sole proprietor, you report your business income and expenses on your personal tax return using Schedule C (Form 1040). You may also need to pay self-employment taxes, including Medicare and Social Security, which you can calculate and report using Schedule SE.
Access the information and the most current versions of Form 1040, Schedule C, and Schedule SE on the Internal Revenue Services (IRS) website.
Additional state and local taxes
- Wyoming does not have a state income tax.
- Depending on the nature of your business, you may still be subject to other business taxes, such as sales tax or use tax. Consult the Wyoming Department of Revenue for more information on state tax requirements.
- You may be subject to additional state and local taxes depending on your business activities. Research and comply with all applicable tax obligations to avoid penalties or legal issues.
Obtain Wyoming business licenses, permits, and zoning clearances
- There is no general business license requirement for sole proprietors in the state of Wyoming.
- While there is no general business license, it is more than likely that your business will need additional licenses and permits to operate.
- Wyoming may require specific licenses for certain professions or industries. Check the Wyoming Business Center’s Business Permitting and Licensing page for more license information.
- You may need specific federal licenses if your business engages in any activities regulated by federal agencies. Visit the U.S. Small Business Administration’s website for more information.
Additional steps
After you’ve secured your EIN, registered for federal taxes, and received the necessary licenses, you’ve completed the essential steps to establish your sole proprietorship.
We suggest a few more tasks to help your small business stay aligned with rules and well-organized.
Open business bank accounts
Drawing a line between your personal and business finances is crucial for maintaining accurate financial records and preserving your personal assets. To set up business accounts, adhere to the following steps:
- Business bank account: Establishing a separate account can simplify the tracking of income and costs, simplify tax filing, and lend credibility to your operation.
- Business credit card: Having a business credit card not only helps segregate personal and business expenses but also aids in monitoring business-related costs and building your business’s credit, which can prove beneficial in the future.
Get liability insurance
As a sole proprietor, you bear the full brunt of any business liabilities, making insurance a crucial aspect of your business plan. This can protect you from unforeseen claims or incidents. We recommend looking into the following:
- General business liability insurance: This policy covers accusations of property damage, bodily harm, or personal injury linked to your business activities.
- Professional liability insurance: If you offer services, this insurance is critical as it shields you from claims of supposed negligence, mistakes, or oversights in your service provision.
Maintain business records
Keeping records is essential for maximizing tax deductions and organizing your sole proprietorship’s financial matters. Ensure you document the following:
- Income
- Expenses
- Assets and liabilities
- Inventory
- Receipts
Utilizing accounting software, spreadsheets, or setting up an organized method can simplify the task of paperwork management.
Sole proprietorship vs. LLC
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 expenses.
Tips:
- Consult a tax advisor to determine the ideal structure for your goals.
- Compare liability protection needs against the desire for simplicity.
FAQs
Can I change my sole proprietorship to an LLC in the future?
Yes, you can convert to an LLC anytime. Speak with a legal professional or business advisor to understand the process and requirements for converting your business entity.
Do I need a business bank account for my sole proprietorship?
While it is not legally mandated, having a separate business bank account is highly recommended. It helps keep your personal and business finances separate, simplifies bookkeeping, and establishes a professional image.
Can I hire employees as a sole proprietor?
Yes, sole proprietors can hire employees. However, complying with all relevant employment laws and regulations is essential.
What is the difference between a single-member LLC and a sole proprietorship?
A single-member LLC provides liability protection that a sole proprietorship does not. However, a single-member LLC is taxed the same as a sole proprietorship.
What is pass-through taxation?
Pass-through taxation means the business itself does not pay taxes. Instead, the business income/losses pass through to the owners, who report them on their income tax returns.
If I want to convert to a Wyoming LLC, what steps do I need to take?
To convert to an LLC, you’ll need to choose a name, file articles of organization with the state, create an operating agreement, hire a registered agent, transfer assets, update licenses, and notify others of the change.
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