Sole Proprietorship in Kansas

By Jeff Franco J.D./M.A./M.B.A.

When you’re the sole owner of a business in Kansas and don’t create a legal entity for it, state law designates it as a sole proprietorship. This means that Kansas doesn’t distinguish between your personal and business activities: they are one in the same. However, if you’re in the process of starting a Kansas business, you should consider all advantages, as well as disadvantages, of operating as a sole proprietorship.

Forming Sole Proprietorship

As soon as you come up with a good business idea and are ready to get operations underway, choosing to operate as a sole proprietor allows you to start the business immediately. This is because Kansas doesn’t impose any state filing or registration requirements on sole proprietors. However, one significant disadvantage is that you’re personally liable for all debts, contractual obligations, or lawsuits associated with the business. Further, business loans are based on your own credit worthiness.

Kansas Business Names

Unlike many other states that require sole proprietors to register their trade names, Kansas lets you use any business name you want and doesn’t impose formal registration procedures or make you check to see if another business already has the same name. In contrast, other business entities in Kansas, such as corporations, must provide a unique name at the time of incorporation. However, if you feel that your trade name is an invaluable asset to your business, you may want to consider obtaining a trademark with the United States Patent and Trademark Office. By obtaining a trademark, you then have the option of registering it with the Kansas Secretary of State, which prevents other Kansas businesses from using the name.

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Kansas Permits and Licenses

Just because you don’t create a legal entity for your business, it doesn’t mean that you are exempt from state regulations that require businesses to obtain a permit or license before engaging in certain activities. For example, sole proprietors who sell goods in Kansas need to apply for a sales tax certificate with the Kansas Department of Revenue. Further, if you operate a liquor store, you’ll need to apply for a Kansas retail liquor license.

Kansas and Federal Taxes

As a sole proprietor, you still have to pay state and federal income taxes on your business earnings, but you report your business income on your personal tax returns. You may take business losses as a personal income tax deduction to offset income from other sources. All profits are taxed at your personal income tax rate. Kansas requires that you report your sole proprietorship earnings on Form K-40, while the IRS requires that you report your business income on a Schedule C or C-EZ attachment to your 1040 form on or before the 15th day of the fourth month following the close of the taxable year. For both federal and Kansas income tax purposes, you need to be aware of your obligation to make periodic estimated tax payments throughout the year since you aren’t subject to withholding like employees are. Moreover, you also have an obligation to pay self-employment taxes, which you calculate on Schedule SE and attach to your federal return.

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