Overview
A sole proprietor is the most common type of new business.
Some key features of a sole proprietorship are:
The business owners income is claimed on their individual income tax return (Form 540PDF Download)
As a sole proprietor you are personally liable for all debts and actions of the business
An individual taxpayer can start a sole proprietorship
A married couple can operate as a sole proprietorship
A business conducted by registered domestic partners (RDP) must operate as a partnership
You can establish a sole proprietorship without registering with the California Secretary of State
Your business remains active until it’s dissolved or upon your death
Set up a sole proprietorship
If you’re a sole proprietor, you run your own business as an individual and are self-employed.
To establish a sole proprietorship, you must:
Choose a business name, for tax purposes, even if it’s your name
Obtain licenses, permits, and zoning clearance
Visit CalGold for more information
You may:
File a fictitious business name statement with the county recorder
Obtain an Employer Identification Number
Visit the Employment Development Department for more information
Filing requirements
A sole proprietorship operates as an individual for tax purposes. This requires the individual to report all business income or losses on their individual income tax return (Form 540PDF Download).
Part-year and nonresidents
For part-year residents or nonresidents, California source income includes, but is not limited to:
Wages
1099 income
Income or loss that flows through from pass-through entities (CA K-1)
Income from intangibles and services
A nonresident operating a sole proprietorship with California source income must file California Nonresident or Part-Year Resident Income Tax Return (Form 540NR).
How to report
Report your business income and expenses on the Profit or Loss from Business (IRS Form 1040 Schedule C)PDF Download.
Nonresident individuals with income or loss inside and outside California, use Schedule R to determine your California source income.
Pay your estimated taxes on the Estimated Tax for Individuals (Form 540-ES)PDF Download.
For information on estimated payments, go to our Estimated tax payments page.
Apportionment and allocation
A trade or business with income within and outside of California may be subject to California apportionment and allocation rules. Visit apportionment and allocation for more information.
Withholding on California source income
Visit our Resident and Nonresident Withholding Guidelines (FTB 1017).