Iowa Sole Proprietorship

How to Become an Iowa Sole Proprietor

Becoming a sole proprietor in Iowa is straightforward. There’s no official setup process or fees involved. To operate an Iowa sole proprietorship, simply start working. But even though it’s easy to start, there are some extra steps you might want to consider. While not mandatory, many sole proprietors find them beneficial.

DBA Acquisition

A doing business as (DBA) name is a crucial part of many sole proprietorships, as it enables you to use an assumed name for your business, rather than your own personal name. The advantages of acquiring a DBA start with image ― most customers feel that an assumed name is more professional and trustworthy than doing business with a company that uses its owner’s personal name instead.

That said, sole proprietors can sign up for a business bank account using their DBA name, which is another step that goes a long way toward making customers feel more comfortable doing business with you.

DBAs, (which are referred to in the state as “trade names”) are relatively easy to obtain in Iowa. For sole proprietorships, trade name filing is a two-step process that first requires confirmation of the name availability. This may be done using the Iowa Business Entities Search. After confirming that your desired name is available for use, you may register it by submitting the appropriate paperwork with the local county recorder in the county in which the business operates.

Determine Taxation Requirements

Sole proprietors without employees usually don’t need to acquire a federal tax ID number (EIN), because as a one-person business, you can typically just use your own social security number for most things an EIN is used for. Still, if you would rather not use your SSN for privacy purposes, it would be a good idea to get an EIN regardless.

Beyond that, the nature of your business will determine which taxes apply to you as a sole proprietor.

For example, if your sole proprietorship sells taxable goods within the state, you’ll likely be required to pay sales tax. Other taxes such as consumer’s use tax, retailer’s use tax, withholding tax, and water service excise tax may also be necessary. In order to discover your liabilities and register for applicable taxes, you’ll need to make an account with Iowa’s Efile & Pay System.

Obtain Business Licenses and Permits

There isn’t a requirement in Iowa for sole proprietors to acquire a general business license, but depending on the nature of your business you may need other licenses and/or permits to operate in a compliant fashion.

Iowa has many tax, regulatory, or occupational licenses that may or may not apply to your sole proprietorship. Thankfully, the state has plenty of resources for helping businesses establish their licensing needs. For assistance determining which licenses you’ll need to apply for, visit IA SourceLink’s Business License Information Center.

In addition, you should check to see if your business needs any licenses or permits on the local level.

For example, municipalities such as Des Moines, Cedar Rapids, Davenport and Iowa City have their own local licensing requirements.

What Is an Iowa Sole Proprietor?

As opposed to a corporation or limited liability company (LLC), the sole proprietorship is not a legal business entity. The sole proprietorship is a one-person business that is not considered to be a distinct entity from the person who owns it, and it is frequently operated using the owner’s personal name.

Here are the three main things you need to know:

Tax Responsibilities

Because there’s no distinction between the owner and the business itself, sole proprietors don’t need to file business tax returns ― they instead simply claim any business profits or losses on their personal tax returns.

Contracts

Sole proprietors are allowed to sign contracts using their personal name, and along those same lines, customers can write checks to the business by using the sole proprietor’s name.

More Flexible

The other big difference between sole proprietorships and more formal business structures is the fact that sole proprietors are allowed to commingle business and personal assets as much as they want to. With LLCs and corporations, ownership is required to keep their assets separate from those of the company. The downside of this aspect for sole proprietors is that if your business is sued, creditors are free to pursue your personal assets like your house, car, personal bank accounts, etc. For corporations and LLCs, creditors are limited to your business assets.