Sole Proprietor

Sole Proprietor in California

A sole proprietor in California must file federal, state, and local filings, primarily related to taxes, business licenses, and fictitious names. The requirements can vary based on your business activities and location.

Tax Filings

• Report income on personal returns: Business income and losses are reported on your personal income tax returns. You will use IRS Schedule C (Profit or Loss from Business) to report your business’s financial activity. This information then transfers to your California individual income tax return (Form 540).
• Self-employment tax: You must pay self-employment taxes for Social Security and Medicare, calculated on IRS Schedule SE.
• Estimated quarterly taxes: Since no taxes are withheld for a sole proprietor, you must make estimated quarterly tax payments to both the IRS and the California Franchise Tax Board (FTB). Use federal Form 1040-ES and California Form 540-ES.
• Sales tax permit: If you sell tangible goods, you must register for a seller’s permit with the California Department of Tax and Fee Administration (CDTFA) to collect and remit sales tax. Registration can be done online.

Local and State Filings

• Fictitious Business Name (FBN): If you operate under a name other than your legal name (e.g., “John Doe Landscaping”), you must file an FBN statement with the county clerk.
  • Filing an FBN typically requires publishing the statement in a local newspaper once a week for four consecutive weeks.
• Business licenses and permits: Depending on your business type and location, you may need specific licenses or permits. Use the state’s CalGold portal to identify requirements.
• Employer Identification Number (EIN): Optional if you have no employees, but required if you plan to hire staff. It also helps separate business banking from personal finances. Apply for free with the IRS.
• California employer registration: If you hire employees, you must register with the Employment Development Department (EDD) within 15 days of paying more than $100 in wages.

Important Considerations

• Simple to start, unlimited liability: A sole proprietorship is the simplest business structure to create, with no initial state-level filing required. However, you are personally liable for all business debts.
• Record keeping: Keeping clear records of income and expenses is crucial for accurate tax filings.

Disclaimer: This is a general overview of the filings for Sole Proprietors in California. Specific tax situations can vary significantly. Always consult with a qualified tax professional or legal advisor for personalized advice.