How to Set Up as a Sole Proprietor in the US

In the US, if you start selling a product or service on your own and don’t form a company, you are generally a sole proprietor by default. The steps are mostly picking a name, checking local licenses, separating your money, keeping records, and learning how self-employment tax works.

This guide is general information, not legal, tax, or accounting advice. Rules vary by state and city and change over time. Confirm details at irs.gov, your state and local government websites, and with a licensed professional.

What a sole proprietorship is

A sole proprietorship is the simplest business type. There is no separate legal entity: you and the business are the same in the eyes of the law.

What that means:

• Easy to start. Often no state filing is needed to begin.
• You report income on your personal tax return, on Schedule C, with your other income.
• You are personally responsible for business debts and legal claims.
• You usually pay self-employment tax, which covers Social Security and Medicare, along with income tax.

Some people later form an LLC or another entity for liability protection. That’s a bigger decision to talk through with a professional.

Step 1: Choose your name

You have two basic options.

Option	What it means
Your own legal name	Example: “Jordan Lee Photography” uses your name and is often simple
A business name (DBA)	A name different from your own, like “Bright Path Design.” This is called a “doing business as” or trade name.

If you use a name other than your legal name, many states or counties require you to register a DBA. Fees and steps vary, so check your state and county clerk’s website.

Before you commit:

• Search your state’s business name database
• Search the US Patent and Trademark Office site for similar marks
• Check whether a matching web domain and social handles are free
• Say the name out loud to see if it’s easy to spell

Step 2: Check licenses and permits

Not every business needs a license, but many do. Requirements depend on what you do and where.

Possible layers:

• City or county business license or tax registration
• State professional license for fields like cosmetology, contracting, real estate, or childcare
• Sales tax permit if you sell taxable goods or services in your state
• Health permits for food businesses
• Home occupation permit if you work from home, and zoning rules for your address
• Homeowners association rules or lease terms that limit business activity

A good starting place is the US Small Business Administration site (sba.gov), which has a license and permit tool by state, and your city and state websites. If you’re unsure, a local Small Business Development Center can help for free or at low cost.

Step 3: Think about an EIN

An Employer Identification Number (EIN) is like a Social Security number for a business. A sole proprietor with no employees can often use their own Social Security number, but an EIN has benefits:

• Keeps your Social Security number off forms you give to clients
• Helps when opening some business bank accounts
• Required if you hire employees or file certain tax returns

You can apply for an EIN on irs.gov for free. Be careful of sites that charge a fee. The IRS does not charge to get one.

Step 4: Open a separate bank account

You aren’t always required to have a business bank account as a sole proprietor, but it makes life much easier.

Why separate:

• Records are cleaner at tax time
• You can see how the business is doing
• It looks more professional to clients
• It reduces the chance of mixing personal and business money

Compare fees, minimum balances, and whether the bank wants a DBA certificate or EIN. Also set up a way to take payments, such as a card reader, online invoices, or a payment link.

If you don’t yet know what you’ll spend each month, a simple budget planner can help you sort personal and business costs while you get started.

Step 5: Set up simple records

Good records protect you if you’re ever audited, help you set prices, and make tax time less stressful.

Track:

• Income: every payment, with date, client, and amount
• Expenses: receipts for supplies, software, mileage, phone, and other business costs
• Mileage: date, purpose, and miles for business driving
• Invoices: copies sent and paid
• Contracts and agreements
• Home office details, if you claim any part of your home

A spreadsheet is enough to start. Keep digital copies of receipts, and back them up. The IRS has guidance on how long to keep records in Publication 583 and on its recordkeeping pages.

Step 6: Understand taxes

This is the part that surprises many new sole proprietors. Nobody withholds tax from your business income, so you generally pay it yourself.

Key ideas, to confirm with the IRS and a professional:

1. You report profit, not just income. Profit is income minus allowed business expenses.
2. Self-employment tax is a separate tax for Social Security and Medicare. The IRS explains it on its Self-Employed pages.
3. Estimated quarterly taxes. If you expect to owe a certain amount, you’re generally expected to make payments during the year. IRS Form 1040-ES and the IRS website explain the due dates and how to figure payments.
4. Schedule C is the form where you report business income and expenses with your 1040.
5. State and local taxes may also apply, including sales tax, state income tax, and local business taxes.
6. Keep a tax set-aside. Many people move a portion of each payment to a separate savings account so they have money ready. Ask a tax professional what percentage fits your situation.
7. Form 1099s. Clients who pay you $600 or more in a year may send a 1099-NEC, but you must report all income whether or not you get one. Check current thresholds on irs.gov, as they can change.

When you’re ready, you can use the IRS Tax Withholding Estimator and Publication 334 (Tax Guide for Small Business) to learn more.

Step 7: Consider insurance and contracts

• Liability insurance may be useful depending on your work. Some clients, landlords, or markets require it.
• Health insurance: if you leave a job, look at options on healthcare.gov or through a spouse’s plan.
• Contracts: put scope, price, timeline, and payment terms in writing. A simple kit like Sole Proprietor Basics: A US Starter Guide walks through the paperwork, step by step.
• Business property or equipment insurance, if you have valuable gear.

Step 8: Set up your first-month routine

A few habits help you stay on top of things.

• Weekly: log income and expenses, send invoices, follow up on late payments
• Monthly: review profit, move tax money to savings, back up records
• Quarterly: check estimated tax due dates and payments
• Yearly: gather documents for the tax return, renew licenses and permits, review prices

Add calendar reminders for each.

A setup checklist

• Pick a name and check availability
• Register a DBA if needed
• Check city, county, and state licenses and permits
• Check zoning, lease, or HOA rules
• Get an EIN if you want one
• Open a separate bank account
• Set up a record-keeping system
• Learn how self-employment and estimated taxes work
• Set aside money for taxes
• Consider insurance
• Put agreements in writing
• Add reminders for deadlines

Common mistakes

• Mixing personal and business money
• Skipping estimated tax payments and facing a surprise bill
• Losing receipts
• Ignoring local license rules
• Assuming you don’t have to report income without a 1099
• Waiting too long to get advice

When to get help

Talk to a licensed tax professional, accountant, or attorney if:

• You’re unsure how much tax to set aside
• You plan to hire employees or contractors
• You’re thinking about an LLC or other entity
• Your work carries legal or injury risk
• You also have a job, and need help with withholding
• You received an IRS notice
• You work in a regulated field

Free and low-cost help exists. Look for Volunteer Income Tax Assistance (VITA) if eligible, your local SBDC, and SCORE mentors.

Where to go next

To keep going, work through the steps above one at a time, and write down the page you used to check each rule. For a starter guide that gathers the checklists and templates in one place, see Start a Small Business in 12 Weekends. If you’re still looking for clients, our guide on finding your first ten customers is a natural next step.