Questions about starting a Sole Proprietorship

[Sunheal]

Hello,

I'm trying to figure out all the necessary steps to start a sole proprietorship in Chandler Arizona. I've recently been contacted for hire work as a 3D modeler for a game publisher. I will be the only employee and plan to use my SSN for my tax id and using my legal name for the business name. I will also be working out of my parents house for the moment.

Basically my main concern is what paperwork I need to file? I read that I don't even need to file paperwork to become a sole proprietorship in Arizona so I'm guessing it then comes down to tax information. Is there any licenses I need as well? Also when I fill out my tax forms I'm not sure how I should go about paying my taxes based on when I get payed. I'm new to all of this.

Thanks for any help anyone can provide me!

[vangogh]

All you need to do is click your heels three times and say "I'm a sole proprietor, I'm a sole proprietor, I'm a sole proprietor." There isn't anything you technically need to do to become a sole proprietor. You'll fill out different forms on your taxes. Where you used to get a W2 from an employer, now you're now your own employer. You fill out a 1040 Schedule C, which is where you report income and deductions. There will be other forms to fill out, though which ones will depend on your specific situation. You'll also have to start sending estimated taxes to the IRS four times a year (April, June, September, and January). There are some guidelines for how much to send, but you want to send them roughly what you'll owe at the end of the year.

Just because you don't have to do anything, you should register your business with your state. You can do that through the Secretary of State website (http://www.azsos.gov/business/trade-names-and-trademarks) in Arizona. The link takes you to the page to file a trade name. You could also file a doing business as (DBA). It looks like it costs $10 to register a trade name that's good for five years. The reason for a trade name is to keep others in the state from using the same name for the same thing. Otherwise you could build up a business and someone else could register the name and you have to start over under a different name.

I doubt you'll need any kind of licensing, but you should check with the state. Read through the SoS site for Arizona. Usually the information you're looking for will be there or the site will point you to where it is. I doubt you'll need to do more, but it is worth checking. Different states have different rules.

[Sunheal]

There will be other forms to fill out, though which ones will depend on your specific situation. You'll also have to start sending estimated taxes to the IRS four times a year (April, June, September, and January). There are some guidelines for how much to send, but you want to send them roughly what you'll owe at the end of the year.

I read that I will need a Transaction privilege for the city I live in at this link. Do I need to file for that before doing any sort of business or can I accept payment for a project now and get that paperwork filed later in the week or so?
https://www.chandleraz.gov/etax/

Also when it comes to quarterly estimate earnings I read something about not having to do that the first year because the estimated earning are based on the first year you get started and then each year after that. Is that true?

Thanks for helping.

[trunker]

I read that I will need a Transaction privilege for the city I live in at this link. Do I need to file for that before doing any sort of business or can I accept payment for a project now and get that paperwork filed later in the week or so?
https://www.chandleraz.gov/etax/

Also when it comes to quarterly estimate earnings I read something about not having to do that the first year because the estimated earning are based on the first year you get started and then each year after that. Is that true?

Thanks for helping.

My first year I did not file quarterly. The penalty and interest was so minimal it did not matter to me at the time. If I would have been making a lot of money at the time I would have. You will not get into legal/criminal trouble if you don't pay quarterly but you will pay interest and a penalty at the end of the year when you file your 1040. Make sure you save for not just fed income but also self employment tax and state income tax.

If you are selling anything make sure you get a sales tax permit and collect!!! You can get into a lot of trouble if you do not do this!

Vangogh pretty much said it all though.

[vangogh]

Do I need to file for that before doing any sort of business or can I accept payment for a project now and get that paperwork filed later in the week or so?

I don't know your city rules well enough to answer. I suspect it wouldn't be a big deal to file the paperwork later in the week. On the other hand if you need to file something, why not just file it as soon as possible to be sure. Do you have to fill out the paperwork to get a sales tax license of some kind? That's what I'm thinking based on the link you posted. Based on your set up of writing code for hire, I don't think you would need to collect any sales tax. You wouldn't add sales tax to a service you're performing. Having said that, you should check with the city, since they're making the rules and not me.