Sole Proprietor
Independent contractors are generally considered Sole Proprietors. This type of business is the simplest and most common business structure. It’s inexpensive and straightforward because you, as the owner, are not a separate legal entity from your sole proprietorship.
You may need to obtain the proper business licenses and permits to offer your services in your state. It’s best practice to keep separate your business bank accounts and credit cards, so it’s easier to separate your business from personal finances.
Filing Taxes as a Sole Proprietorship:
- You will be subject to Pass-Through Taxation
- You will only need your Social Security Number (not an Employee Identification Number)
- Pay self-employment taxes
- Pay both worker and employer share of FICA taxes
- Report your business profits and losses to the IRS
Disadvantages of a Sole Proprietorship:
- Sole Proprietorships are commonly not protected from any business liabilities.
- Legal action against the entity may affect both the entity's assets and your personal assets.
- You can only operate under your legal name
- Or file a DBA - “Doing Business As” to work around using your legal name
How to Register a Sole Proprietorship
1. Choose your business name
As an independent contractor, you can use your own name without having to register it. If you're using your full name and adding a word or two after (i.e., John Smith Editorial), then you don't need to register it.
You will only need to register your name if you don't use your full name in your business name. It must be registered as a fictitious business name (assumed name or DBA, "doing business as"). For example, John Smith wants to name his business John Consulting.
Register either with the county clerk or state office (Department of State for some states)
2. If needed, get a professional or vocational license for your trade/service.
3. Start paying estimated taxes to the IRS - seek tax advice and assistance filing from a CPA or tax professional.