As a sole proprietor, one of the first decisions you’ll need to make is whether to operate under your personal name or file a fictitious business name, also known as a “doing business as” or DBA. Using a DBA can provide some advantages but also comes with some additional requirements. Here’s what you need to know about running your sole proprietorship under a DBA.
What is a DBA?
A DBA allows a sole proprietor or other business entity to operate under a different trade name than their legal name. For example, if Jane Doe wants to open a plumbing business called “Seattle Super Plumbing”, they would file for a DBA with that name rather than just operating under “Jane Doe.”
Why Use a DBA for Your Sole Proprietorship?
There are a few key reasons why sole proprietors commonly choose to file a DBA:
- Branding – A DBA allows you to choose a business name that is distinct and memorable for marketing/branding purposes rather than just using your personal name.
- Privacy – With a DBA, your personal name isn’t publicly disclosed on business documents, signs, websites etc. This provides a degree of privacy.
- Flexibility – If you ever want to change your business structure down the road from a sole prop to an LLC or corporation, it’s easier with an established DBA name.
How to File for a DBA in Washington State
The process for obtaining a DBA is handled at the state level. In Washington, you’ll need to register your trade name with the Washington Secretary of State following these steps:
- Conduct a name search to ensure your desired name is available and not already registered or too similar to other businesses.
- If the name is available, file a Business License Application with the Business Licensing Service and pay the required fees (around $30 — as of 2023).
- Your DBA registration will automatically renew annually when you renew your business license.
It’s recommended to also register your DBA with the county where your business is based by making a filing with the County Clerk’s office.
Tax Implications of a Sole Prop DBA
From a tax perspective, operating as a sole proprietor under a DBA does not create a separate legal entity from yourself. You will report all business income or losses on your personal tax return, just as you would without a DBA.
There are no special IRS tax forms for a DBA alone, but there are some additional requirements:
- Obtain an EIN: The IRS recommends that all DBAs with employees obtain an Employer Identification Number (EIN). This acts like a Social Security number for your business. Even solo DBAs with no employees may want to get an EIN to keep business and personal finances separate.
- Use Your DBA Name: When filing taxes, make sure to use your officially registered DBA name on Schedule C (for reporting business profits/losses) and any other relevant business tax forms.
- Taxes Are Still Based on Your Personal Income: All income from your DBA passes through to your personal tax return, and is subject to personal income taxes, self-employment taxes, and potentially estimated quarterly tax payments.
- Follow Proper Accounting Practices: Be diligent in maintaining thorough records and accounting practices for your DBA to accurately track income, expenses, assets, etc. This will make tax filing easier and provide documentation if audited.
The tax situation remains largely the same with or without a DBA as a sole proprietor. The DBA just provides an official trade name for branding and legal purposes. If you plan to operate your business under a company name other than your personal name, filing for a DBA is recommended.
As with any tax or legal issues, it’s wise to consult a qualified CPA or attorney, especially when first establishing your business. We can ensure you understand all requirements and remain compliant.
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