How to Register a Sole Proprietorship in the United States

In the US, registering a sole proprietorship allows you to start a business quickly and with little cost. You don’t need to file incorporation paperwork at the federal level, and there is no minimum capital requirement. This makes it especially appealing to freelancers, consultants, and small businesses who want to get started right away. However, because sole proprietors have unlimited personal liability and must handle federal, state, and sometimes local taxes on their own, the structure also comes with risks.

The exact process and requirements can differ from state to state, especially when it comes to business name registration, licenses, and local tax obligations. It’s always important to check your state or county rules alongside federal obligations. Despite these differences, many entrepreneurs choose a sole proprietorship for the independence, simplicity, and control it offers. This article explains how sole proprietorships work in the US, how to register one, and what to expect when it comes to taxes, liability, and ongoing requirements.

Disclaimer: This article is for informational purposes only and is not a substitute for legal advice. Please always check official sources or seek professional guidance before taking action.

What is a sole proprietorship in the United States?

In the US, a sole proprietorship is simply a business owned and operated by one person without forming a separate legal entity. Depending on context, it may also be referred to as:

• Sole trader
• Self-employed worker
• Independent contractor

These terms all describe the same business model: one person legally running a business without forming a company.

How does a sole proprietorship work in the United States?

Learn How Do State Payroll Taxes Vary in the US? (2025 Guide)

Sole proprietorship vs. other business structures in the United States

Registering a sole proprietorship in the United States is the fastest way to get started, but it’s important to understand how it stacks up against LLCs and corporations when it comes to liability, costs, and taxes. Here is an at-a-glance comparison:

Step-by-step guide: How to register a sole proprietorship in the United States

Step 1: Check your eligibility

You must be legally allowed to work in the US. There is no federal age requirement, but minors may face restrictions on contracts and opening business accounts. Foreign nationals can register as sole proprietors but may need an Individual Taxpayer Identification Number (ITIN) or EIN, depending on their situation.

Step 2: Choose your business name

You can operate under your own legal name or register a trade name. A name search tool is usually available on your state or county website.

Step 3: Gather required documents

You will need:

• Proof of identity (passport, driver’s license, or state ID)
• DBA or trade name registration form (if applicable)
• Proof of business address (lease agreement, utility bill, or deed; some states may accept a home address)
• State or local licenses and permits, depending on business activity
• EIN from the IRS if hiring staff, required by banks, or preferred over using your SSN

Step 4: Register with the authorities

Apply for a DBA through your county clerk or state business division if using a trade name. Obtain necessary licenses or permits. Apply for an EIN on the IRS website if required.

Step 5: Pay registration fees and contributions

Costs are minimal. A DBA might cost between $10 and $100, depending on the state. Local licenses or permits may have additional fees.

Step 6: Complete post-registration obligations

Set up bookkeeping to track income and expenses. File annual taxes using Form 1040 with Schedule C. Many sole proprietors must also make quarterly estimated tax payments using Form 1040-ES. If you hire staff, register for payroll taxes, and comply with state labor laws. Renew any licenses as required.

Financial and tax obligations for sole proprietors in the United States

You are responsible for:

• Income taxes: Sole proprietors report business profits on their personal federal income tax return using Form 1040, Schedule C. The federal income tax system is progressive, ranging from 10% to 37% depending on income bracket. In addition, you must pay self-employment tax (15.3%) to cover Social Security and Medicare, reported on Schedule SE. Most states also levy income taxes, though some (like Texas and Florida) do not. Returns are filed annually, and many sole proprietors must also make quarterly estimated tax payments.
• Sales tax: The US does not have VAT, but most states require sole proprietors who sell goods or taxable services to register for sales tax with their state revenue agency. You must collect sales tax from customers and remit it to the state, usually on a monthly or quarterly basis, depending on revenue.
• Social security contributions: Instead of separate employer and employee contributions, sole proprietors pay the full self-employment tax (15.3%), which covers both portions of Social Security and Medicare (IRS self-employment tax guidance). Payments are typically made quarterly along with estimated taxes.
• Record-keeping: You must keep accurate records of income, expenses, invoices, and receipts. These are required to complete Schedule C and substantiate deductions. The IRS recommends keeping records for at least three years, but some documents (like property records) should be kept longer (IRS recordkeeping guidance).
• Invoicing: There is no federal format requirement, but professional invoices should include your name or business name, address, tax ID (SSN or EIN), client details, date, description of goods or services, and the amount due. States that require sales tax also expect invoices to clearly show the tax collected.

Launch your contracting career and stay compliant with Deel

Registering a sole proprietorship gives you independence, but it also means handling taxes, invoices, and records on your own. Deel’s all-in-one platform helps you manage obligations without the stress. With Deel, you can:

• Automate invoicing and expense tracking with essential Bookkeeping tools
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FAQs

What is the minimum capital required to start a sole proprietorship in the US?
None. You can begin with no set capital requirement.

Do sole proprietors need to register for VAT/GST?
No. The US does not use VAT, but most states require sales tax collection on goods and some services.

How much are the standard monthly or annual contributions?
There are no standard contributions just for being a sole proprietor. You may owe quarterly estimated taxes and state/local license fees.

Can a sole proprietor hire employees?
Yes. You’ll need to withhold payroll taxes, pay employer contributions, and comply with state labor rules.

How long does it take to register as a sole proprietor in the United States?
Often, the same day for DBA filings. Licensing times vary by jurisdiction and industry.

Can foreign nationals register as sole proprietors in the United States?
Yes, provided they have the right immigration status and tax ID (ITIN or EIN).

Do sole proprietors need a separate business bank account?
Not legally required, but highly recommended to keep personal and business finances separate.

What happens if I stop working as a sole proprietor?
Cancel your DBA and licenses if applicable, file a final tax return, and notify authorities if you had an EIN.

Are there any government incentives or reduced rates for new sole proprietors?
Incentives vary by state or federal program, such as small business grants or tax credits.

Can I use Deel as a sole proprietor to get paid by international clients?
Yes. Deel enables U.S. sole proprietors to get paid globally in multiple currencies with low fees.

Does Deel generate compliant invoices for sole proprietors?
Yes. Deel provides compliant invoices with all required details for U.S. tax purposes.

Can Deel help me with taxes as a sole proprietor in the United States?
Yes. Deel offers tax reports and records you can use for filing, though it doesn’t replace a CPA.

Does Deel offer contracts for freelancers and sole proprietors?
Yes. Deel provides U.S.-compliant contract templates.

Can I access benefits through Deel as a sole proprietor?
Yes. Deel offers optional benefits such as insurance and retirement plans that are typically unavailable to freelancers.