If you’ve just started your business, whether you’re freelancing in a creative field or launching a small startup, you’re probably wondering what horrific mountains of paperwork and red tape await you. Will you spend the next six months downloading and printing form after form until you never want to see the ink section in Staples ever again? Will you make a grave error and wind up owing the government money? Should you just hire someone to do it all while you look the other way?
Well, we have some good news; it’s probably not as complicated as you think. If you’re the only member of your business, you’re actually facing a relatively easy path ahead when it comes to paperwork. You’re either a sole proprietor or a DBA (doing business as), and the bureaucracy surrounding both of those is minimal.
If you’re doing business under your own name and you’re the only person who works for you — say, a freelance writer, designer, or painter — you are automatically a sole proprietor. You need only register for a business license; rules vary state by state, and you can find more information about your state’s requirements here.
There are a couple of advantages to sticking with a sole proprietorship:
You’ll have very little paperwork, especially compared to setting up an LLC or an S Corp You’ll be taxed on all of your revenue and profits as personal income, so you don’t have to worry about paying business taxes come April.
Some of the benefits of being a sole proprietor are the same as being a DBA (which we’ll get to in a moment). In both cases, you get to make all the decisions for your own business, instead of having to consult a board of directors or other members. You’ll also have fewer formal requirements as far as bookkeeping and record-keeping. The drawbacks of being a sole proprietor, though, are also similar to being a DBA. The most pressing? Your personal assets are fair game. If someone decides to sue you, then your car, house, and bank accounts are at risk.
The Business of Make-Believe
As far as what makes you a DBA versus what makes you a sole proprietor, the primary question is what the name of your business will be. A DBA identifies your business under a fictional name, whether that’s a riff on your own name or something else entirely. So if you’re a denim designer named Jen Jones and your clothing will be sold under the business name Jen Jones, great! You don’t really need a DBA, at least not for these purposes. But if you’re a denim designer named Jen Jones and your clothing will be sold under the business name Jen’s Jeans, you do need a DBA; otherwise you may be subject to fines and penalties.
Additionally, if you want to open a bank account for your business, you will likely need a DBA, as required by most U.S. banks. DBAs are filed locally, with your town or county; you can find more information about your local requirements on the U.S. Small Business Administration website. The DBA form is relatively simple to fill out; and it’s a simple step towards making your most creative business ideas a reality.