How to Start a Sole Proprietorship in Washington State

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What is a Sole Proprietorship in Washington?

A Sole Proprietorship in Washington is an informal business structure owned by one person.

And the business owner is called the Sole Proprietor.

Sole Proprietorships are often the easiest and simplest form of business structure to create. However, that doesn’t always mean they are the best choice for small business owners.

While Sole Proprietorships have some advantages, there are also disadvantages you should be aware of.

We explain the pros and cons below, and provide step-by-step instructions if you decide to start a Sole Proprietorship in Washington.

Matt Horwitz, founder of LLC University®Pro tip: Sole Proprietorships don’t protect your personal assets. On the other hand, if you form an LLC, your personal assets are protected in the event of a lawsuit. Check out Sole Proprietorship vs LLC for more information.

Advantages of a Sole Proprietorship

Ease of setup and maintenance

The primary advantage of a Sole Proprietorship is how easy they are to set up and to maintain.

In fact, there is no form to file in order to “create” one. If you’re doing business by yourself, you’re operating as a Sole Proprietorship.

Think of it this way: once you engage in business activities, with the goal of eventually making money, you are operating as a Sole Proprietorship.

How to start an LLC

For example, if you want to start a wedding planning business, the moment you begin doing business research, calling potential customers, or building your website, you’re operating as a Sole Proprietorship.

Taxation

The second advantage of a Sole Proprietorship is taxation. Filing taxes for a Sole Proprietorship business is very similar to how you already file your individual taxes.

Meaning, you already file a personal Form 1040 tax return each year. However, as a Sole Proprietorship you (or your accountant) will include a Schedule C which lists your business profits or losses.

Disadvantages of a Sole Proprietorship

There is one major disadvantage and a few other minor disadvantages of a Sole Proprietorship.

No liability protection

The main disadvantage of a Sole Proprietorship is liability protection: there is none.

If your business is sued, your personal assets (like your home, cars, and bank account) could be used to settle the business’s debts and liabilities.

On the other hand, if you formed an LLC or a Corporation, your personal assets are protected in the event of a lawsuit. Only the business’s assets can be used.

Tip: LLCs offer additional asset protection that Corporations don’t.

Lack of credibility

Even though you can file a DBA name (discussed below), Sole Proprietors are still often seen as being less credible.

On the other hand, if you were to form a legal business entity, like an LLC or Corporation, those are considered more official and reputable.

Converting from a Sole Proprietorship to an LLC

If you start your Washington business as a Sole Proprietorship, and then later want to convert to an LLC or Corporation, it’s a large headache with many steps involved.

There isn’t a one-step process to convert a Sole Proprietorship to LLC. In fact, there are often multiple steps and multiple filings you must make with various state departments and local governments.

For example, if you want to convert your Sole Proprietorship to an LLC, you need to update the state, the IRS, and the bank that your business type has changed. And if your business requires a license or permit to operate, you will need to re-apply for those as the new business. You may also need to redo contracts with your clients and vendors, and update your website and marketing materials.

So if you’re on the fence about which type of Washington business to choose, and you have the money to spend on an LLC, we recommend starting an LLC in Washington.

Sole Proprietorship vs LLC

A Limited Liability Company (LLC) is a legal entity that offers pass-through taxation and asset protection. If your LLC is sued, your personal assets – like your home, car, and personal bank account – are protected.

An LLC with one owner is called a Single-Member LLC. And the great thing about them is they are taxed just the same as a Sole Proprietorship. Check out LLC taxed as Sole Proprietorship for more details.

To start an LLC in Washington State, you must file a Certificate of Organization with the Secretary of State and pay a $200 filing fee.

LLCs must also pay an LLC annual fee and appoint a Registered Agent in order to stay in compliance.

If you want to hire a company to form your LLC, we recommend Northwest Registered Agent.

If you decide you’d rather operate as a Sole Proprietorship in Washington, we have the instructions below.

How to start a Sole Proprietorship in Washington

The only thing you must do to start a Sole Proprietorship in Washington is simply decide to start.

Said another way, just by taking actions that may lead to making money means that you’re now a Sole Proprietor. You don’t have to file a document to “form” your Sole Proprietorship with the state.

However, there are a few things you may need to (or want to) do in order to operate legally.

For example, your business may need a license or permit to operate. You should also get an EIN Number (so you aren’t putting your social security number on invoices or contracts).

It’s also best practice to open a separate business bank account, and you may want to get a DBA for branding.

We’ll walk you through each of these steps below.

Step 1 – Business Planning Stage

Once you have a business idea and have decided to operate as a Sole Proprietor, it’s a good idea to establish some key components of the business.

Some things that are helpful to think about are:

  • business model
  • business name
  • startup costs
  • industry
  • marketing ideas
  • business address

Your business model is how your Sole Proprietorship plans to make money – what will you sell, how it’s made, how it’s delivered, how it’s marketed or advertised, etc.

It’s a good idea to think of marketing ideas early on to help your business succeed. A good marketing plan can include developing a branded logo and business name, deciding where to advertise, building a website, and developing a social media strategy.

You should also choose a primary business address. This can be an actual office address, but it doesn’t have to be. It could be your home address or you could even rent a mailbox address. The purpose is to have one designated address where all mail for the business is sent, and that you can use on official documents.

Step 2 – Name your Sole Proprietorship and get a DBA

Now that you’ve done some business planning, you have the option to name your company.

By default, a Sole Proprietorship’s name is the owner’s legal name. However, if you’d rather do business under a different name, you can file a DBA name (Doing Business As name).

For example: Felipe Cruz is starting a wedding planning business. Instead of having to do business under his full name – Felipe Cruz – he’d like to do business under the name “Excellence in Events”. In this case, he’ll need to register his DBA name “Excellence in Events”.

Having a DBA name can make it a lot easier to brand and market your business. It can also make your business sound larger than a one-person business.

Having said that, a DBA name isn’t required for a Sole Proprietorship in Washington state. If you’d rather do business under your first and last name, that is 100% okay.

Note: In Washington, a DBA is technically called a Trade Name, however, they mean the same thing.

How do I get a DBA in Washington state?

You can register a DBA as part of the Business License Application process in Washington.

Read the full step-by-step instructions for the Business License Application below.

Need to save time? We recommend hiring MyCompanyWorks ($99 + state fee) to file your DBA.

Step 3: Get an EIN from the IRS

By default, a Sole Proprietor uses their Social Security Number (SSN) for tax and financial reporting.

However, a Sole Proprietor also has the option of getting an EIN Number (Employer Identification Number) from the IRS.

Notes: Whether or not you get an EIN for your Sole Proprietorship will not impact your taxes. Your taxes will be filed the same either way.

An EIN is also called a Federal Tax ID Number, Federal Employer Identification Number, Employer Identification Number, or FEIN. They all mean the same thing.

Getting an EIN for your Sole Proprietorship may be a good idea for a few reasons:

For safety (prevent identity theft)

By using your EIN, you don’t have to give out your own Social Security Number as much. Without an EIN, you may need to use your SSN when dealing with vendors and clients.

For example, if a client pays you more than $600 per year, you’ll need to give them IRS Form W-9.

Instead of using your SSN, you can list your EIN instead on Form W-9.

You can also use your EIN to apply to online account setups and other places you may do business.

For hiring employees

In this case, an EIN isn’t optional; it’s required. If you want to hire employees for your business, you will need to obtain an EIN first. This is because an EIN is required in order to pay payroll taxes for your employees.

Note: As a Sole Proprietor, while you are considered self-employed, you are technically not an employee.

Step 4 – Research business license requirements

Washington requires a “general” state-level business license for Sole Proprietorships.

Most cities or towns in Washington also require business licenses. Washington requires all businesses to register for taxes. And you apply for a DBA using the Washington Business License Application, as well.

You can read more about the process here:

The Business License Application costs $90, and a DBA costs an extra $5.

First, create a SecureAccess Washington account. Read the Dept. of Revenue’s complete Set Up Instructions.

What’s on the Washington State Business License Application?

There are several phases of the Business License Application, but here are the most important ones:

  • City or town business license: You can get some of these local licenses through the Business License Application, but others are filed through FileLocal. The Business License Application will let you know whether you can get the city license or if you need to apply for it through FileLocal.
  • Trade Name (DBA) registration: If you need (or want) a DBA for your Sole Proprietorship, you will apply for it in the Washington Business License Application.

Tip: Save time by hiring an expert. We recommend using IncFile ($99) to handle the business license research for you.

Step 5 – Maintain your business

Once you have established your Sole Proprietorship, there are a few things to do in order to keep it in good working order.

Getting a business bank account, maintaining business financial records, and filing taxes are all part of making your business run smoothly.

Business Bank Account

It’s important to open a separate business bank account for your Sole Proprietorship in Washington.

Keeping business finances separate from personal finances is an important part of operating a business safely.

Business bank accounts typically allow you to process more transactions per month than a personal bank account, and have other benefits.

Some banks may require a DBA in order to open a business bank account for a Sole Proprietor. We recommend calling the bank to see if a DBA is required or if you can open the business account in your own name.

While you’re on the phone, it’s also a good idea to ask about the products they offer, and what documents they require.

For example, most banks require you to bring your photo ID, and if you have them: your EIN Confirmation Letter and DBA filing.

Keep Business Records

Most states require that businesses keep certain records. There is no law specifically governing Sole Proprietorships, however, it’s a good idea to keep the following records:

  • Copies of tax returns for the previous 3 years
  • Copies of any financial statements for the previous 3 years

If you’re just starting out, you won’t have these records right away, and that’s okay. Just save and organize them as you do business.

We recommend establishing a specific location to store the records.

For example, a filing cabinet in your house or at the business’s office location will work fine. So will an online cloud storage system where you scan and save all of your business documents.

File your taxes (or hire an accountant)

As mentioned above, when operating as a Sole Proprietor, you’ll report your business profits or losses on your personal income tax returns.

While you can file your personal tax return yourself (using a software like Turbotax), you may want to hire a professional to maximize your business credits and tax deductions.

If you’d like to hire a business accountant, we’ve made a list of Business Accountant Recommendations for all 50 states.

Conclusion

While starting a Sole Proprietorship in Washington may seem easier and less expensive than starting a formal business entity (like an LLC), it can be risky.

Sole Proprietorships don’t offer asset protection, and you’ll likely still have to file paperwork for a DBA name and business licenses or permits.

In general, we don’t see many good reasons to operate a business as a Sole Proprietorship, and we don’t recommend it. Sole Proprietorships don’t have any advantages over legal entities.

Instead, we recommend starting an LLC in Washington.

Note: The exception to this would be if you really don’t have money to pay for an LLC, especially if your state has expensive fees. For some, a Sole Proprietorship may be the only option for getting your business off the ground and earning profits. In this scenario, a Sole Proprietorship can be a good place to start.

Explore your Washington LLC options with our tutorials and step-by-step guides for starting an LLC in Washington state.

Washington Sole Proprietorship FAQs

What is better, LLC or Sole Proprietorship?

While starting a Sole Proprietorship is easy, the advantages end there.

Sole Proprietorships offer no personal asset protection. If your business is sued, you’re personally liable for the business debts and obligations. On the other hand, if you form an LLC, your personal assets are protected if your business is sued.

Sole Proprietors are also seen as less official and less legitimate than a formal entity like an LLC.

We recommend forming an LLC instead of a Sole Proprietorship. Not only does it offer personal asset protection, but they are more credible, and there’s no difference between how you file and pay taxes for a Sole Proprietorship versus an LLC.

How do I make myself a Sole Proprietorship in Washington state?

There is no form to file to start a Sole Proprietorship. Simply by engaging in activities with the goal of making money, you are operating as a Sole Proprietor.

However, if you’d like to use any business name other than your first and last name, you’ll need to register a DBA (Doing Business As) Name.

Are Sole Proprietorships required to register in Washington?

You don’t have to register your Sole Proprietorship with the Washington Secretary of State. It simply exists once you decide to start a business and engage in business activities.

However, if your Sole Proprietorship will use a DBA (aka Trade Name), then that needs to be filed with the Washington Secretary of State in the Business License Application process.

Additionally, you should check with an accountant in Washington state about whether your Sole Proprietorship needs to register with the Washington Department of Revenue for things like sales tax or other types of taxes.

Can a DBA be a Sole Proprietorship?

A DBA isn’t a Sole Proprietorship. A DBA is just a “nickname” for something else – whether that’s a business or person(s).

And the default name for a Sole Proprietorship is the first and last name of the owner (like: Bob Barkley).

Having said that, Sole Proprietors can do business using a DBA (doing business as) name.

For example, if Bob Barkley is running a bagel shop, he can file a DBA called “Bob’s Bagels & Sandwiches” in order to better brand and market his business.

How are Sole Proprietorships taxed?

Any profit or loss from your business is reported on a Schedule C with the Internal Revenue Service (IRS).

And the Schedule C is included with the rest of your personal tax return (Form 1040).

What’s the difference between a Sole Proprietorship and a Partnership?

A Sole Proprietorship is an informal business structure with one owner.

A Partnership, aka General Partnership, is an informal business structure with two or more owners.

While both structures have pass-through taxation, a Partnership needs to file Form 1065 at tax time, while a Sole Proprietorship doesn’t. Instead, a Sole Proprietor needs to include a Schedule C on their personal tax return.

Matt Horwitz
Matt Horwitz
Matt Horwitz is the leading expert on LLC education, and has been teaching for 15 years. He founded LLC University in 2010 after realizing people needed simple and actionable instructions to start an LLC. He's cited by Entrepreneur Magazine, Yahoo Finance, and the US Chamber of Commerce, and was featured by CNBC and InventRight.
 
Matt holds a Bachelor's Degree in business from Drexel University with a concentration in business law. He performs extensive research and analysis to convert state laws into simple instructions anyone can follow to form their LLC - all for free! Read more about Matt Horwitz and LLC University.

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