How to file taxes for a dba

Filing taxes for a dba is something that everyone who owns their own business must face eventually. Filing taxes seem scary, but at the end of the year you will get your money back for which you worked so hard.

If you’re a sole proprietor, you’re probably wondering how to file taxes for a dba.

The first step is to figure out what kind of business you have. If it’s a sole proprietorship, then you’re already set! You don’t need to do anything else. Just file Schedule C and take your deductions.

If you have multiple businesses or are part of a partnership or corporation, things get more complicated. You’ll need to file Form 1065 (if there are multiple entities), Form 1120S (if there’s only one entity), or Form 1120 (if it’s a corporation). Then each entity will need its own Schedule C and Schedule SE.

You’ll also need to complete Schedule SE (self-employment tax), which is used to calculate the amount of Social Security and Medicare taxes that you owe on your business income. The amount of these taxes will depend on how much money you made from your business during the year, but generally speaking, if your net earnings from self-employment are over $400 in 2019, then you’ll need to pay self-employment tax on those earnings.

If you have employees who work for your company while they’re employed by another company or organization (such as an agency or staffing firm), then the IRS considers those employees to be “independent contractors” rather than employees. This means that they won’t be included on any W-2 forms when they file their taxes–instead, they’ll receive 1099 forms at the end of each year that detail how much money they received from each client during the previous tax year (and who paid them).

What is a DBA?

If you’ve ever considered working for yourself, or starting your own business, you may have wondered: what is a DBA? Is a fictitious business name the same as a DBA? What are the benefits of a DBA to my business and myself?

DBA application filing is used by state agencies to identify individuals doing business as (DBA) a fictitious name, trade name, or any name that differs from his/her given name. There is no difference between what is called a fictitious business name and DBA application filing. In fact, it’s possible you may hear people use them interchangeably; just know that they are one in the same.

Freelancers, consultants, and small business owners file a fictitious business name (or a DBA) to notify the public as to who owns, or is doing business as the name of a that particular business.

The Benefits of DBA Application Filing

Regardless of the type of work you do, there are several good reasons to file a DBA for your business.

While a DBA does not provide any liability protection or tax benefits to you as a small business owner or freelancer, they are much cheaper to establish than every other type of business entity. With a DBA, you’ll also be able to apply for a federal tax ID number, which is required is and when you decide to open a bank account in the name of your business, acquire credit, or make payments in the name of your business.

Moreover, a DBA is a great way to protect your personal identity. Instead of providing clients with your Social Security Number (SSN) for completing various tax forms, you can use the federal tax ID number, which is sort of like a SSN for your business; it’s unique to your business name, and allows you to keep business dealings more organized and separate from your personal finances.

How to File Income Tax With a DBA Business

DBA Businesses

Businesses are formed under state law which requires every business to operate under a legal name that distinguishes it from any other business operating in the state. This requirement ensures that the public is able to properly identify the legally responsible party doing business under a particular name. If a business wants to operate under a name that is not its legal name, it must register a fictitious business name, also known as a DBA, with a state agency. Any type of business can use one or more DBAs, including a sole proprietorship, partnership, limited liability company or corporation, as long as the DBA is registered in the state where it will be used according to the state’s registration procedures.

Why Understanding the Difference Between DBA and LLC Is So Important

DBAs and LLCs are very different from each other. It’s crucial that you understand how DBAs work and LLCs work so you can determine which one is right for your unique scenario. 

There are times when DBAs make the most sense for businesses and other times where LLCs are the clear choice. Some of you might fall into a category where you’ll need an LLC and a DBA.

Once you’ve educated yourself and solidified the best option, you can rest easy knowing that your business is set up the way you want. You’ll have a clear understanding of your liabilities and compliance requirements to ensure your business remains in good standing with the state.

What is a DBA?

DBA stands for “doing business as.” The terms “trade name,” “fictitious name,” and “assumed name” are all synonymous with DBA names. Certain states and jurisdictions may formally use different terminology, but it’s all the same thing.

A DBA is not a legal business entity, so it doesn’t offer any liability protections or tax advantages. It’s simply a name that can be used for business purposes.

Sole proprietorships, partnerships, LLCs, and corporations are all potential candidates for registering a DBA name. 

For example, let’s say you’re an independent contractor that offers web design services. You don’t have a legal business entity, but you want to register a business name for branding purposes to make yourself appear more professional to clients. Rather than using your own name, you can register a DBA name like “Web Design Plus” or “Superior Design Services.”

Once you register a DBA, you can even apply for an EIN with the IRS using that name. You can use a DBA to open a checking account, apply for credit cards, and even accept payments for checks written to that name.

What is an LLC?

LLC stands for “limited liability company.” 

LLCs are legal business entities registered at the state level. When an LLC gets formed, a new entity is established that’s separate from the owner or owners. 

As the name implies, the biggest advantage of an LLC is liability protection. If the business gets sued, goes bankrupt, owes money to lenders, or can’t pay creditors, the owners aren’t responsible for any liabilities or debts. So you can only lose up to the amount you’ve invested in the business, and your personal assets will be protected. 

Forming an LLC also gives you more freedom and flexibility in terms of taxation. We’ll discuss these options in greater detail later on. 

LLCs require a bit more work and effort to get started. They’re more expensive to form and maintain than a DBA. But they aren’t subject to as many restrictions as other business entities, like corporations. 

There are scenarios where it makes sense to form an LLC and register a DBA. For example, let’s say you’re opening a new restaurant and decide to form an LLC called “Antonio’s Authentic Mexican Cuisine.” 

After six months, you want to start a food truck as an extension of the restaurant. But you don’t want to form another LLC, and you’re not crazy about your existing name for the branding of a food truck. You could register a DBA name as “Tony’s Taco Truck” and use that for the catering side of your business. 

Quick Tips to Decide Whether a DBA or an LLC is Right For You

Whether you’re forming an LLC or registering a DBA, you shouldn’t feel intimidated about the process. Rather than filling out the paperwork and filing everything on your own, you can use an online service to handle all of the work for you.

Tip 1 — Liability Protection

LLCs offer liability protection. DBAs do not.

So the first thing you need to do is decide whether or not this is important to you. The answer will really depend on the type of business you have and your exposure to debts and liability. 

Generally speaking, it’s in your best interest to go with an LLC to protect your personal assets. If your business has physical products, physical office space, or you plan to hire employees, you’ll definitely want the protection offered by an LLC.

For those of you who run an online service-based business and don’t have any business-related debts, you could potentially get away with remaining a sole proprietor and registering a DBA. 

Just know that there’s always going to be some risk involved here, and nobody is immune to a lawsuit. For example, let’s say you offer online consulting services or nutrition coaching. One of your clients could potentially sue you if they follow your diet routine or workout program and end up getting hurt as a result. 

Tip 2 — Formation Process and Upfront Fees

Registering a DBA name is about the easiest thing you can do. While the exact requirements vary from state to state, it’s usually just one form, and you’re good to go. 

LLC formation sounds a bit more involved, but it’s not that complicated.

You’ll need to file articles of organization with the state, create an operating agreement, get an EIN, get a registered agent, and comply with some unique state-specific mandates during the formation process.

Tip 3 — Business Name and Branding

LLCs and DBAs actually both give you the advantage of having a business name that you can use for marketing and branding purposes. 

You can even use the name of your DBA to open bank accounts and accept payments.

DBAs also work great for privacy protection, as you won’t be forced to use your real name for business purposes. You can just operate under the DBA name.

The biggest difference between the LLC name and a DBA name is how that name is protected. In some states, registering a DBA name will prevent other businesses from using that same name. But these protections aren’t offered nationwide. So, you might need to register a trademark to ensure nobody else uses your DBA. 

But with an LLC, no other business entity in your state can register or use that name for business purposes or branding. 

Long-Term Strategies For DBAs and LLCs

In addition to the quick tips mentioned above, there are some long-term considerations that you should keep in mind before you finalize a decision. 

You may not notice the results today or immediately after the decision has been made. But when you look beyond the initial steps and cost, the following factors should add some clarity to determine the best option. 

Strategy 1 — Consider the Tax Implications of Your Decision

Regardless of which option you decide to go with, you’re going to be paying taxes. That’s just part of doing business. But LLCs give you more tax options than DBAs. Here’s what you need to know:

If you’re a sole proprietor registering a DBA, nothing is going to change in terms of your tax situation. All earnings made from your DBA will still appear on your personal return and will be subject to regular income taxes and self-employment taxes. 

Self-employment taxes are where sole proprietors get hit the hardest. That’s because they need to pay 15.3% taxes on all net business income before deductions. 

By default, LLC income will automatically flow to the personal returns of members based on their share of ownership. But LLCs have the ability to be taxed as a corporation, which gives you some more flexibility.

You could elect to be taxed a C-corp, and the business will pay a flat corporate tax rate of 21%. This avoids self-employment tax, as the IRS doesn’t view LLCs taxed as C-corps as people who are self-employed. On your personal tax return, you’ll pay capital gains taxes on whatever you receive from the LLC. But this income is technically taxed twice—once for the business and again on your personal return. 

LLCs that choose to be taxed as S corporations have some more options. In this case, the business itself does not pay income taxes. You’ll only pay taxes on what you pay yourself as a salary. This income is subject to self-employment tax, but you can control how much you’re paying by giving yourself a reasonable salary. 

In short, LLCs give you three different potential taxation options to consider. DBAs don’t offer any tax benefits.  

Strategy 2 — Review the Ongoing Requirements Beyond the Initial Setup

DBAs are much easier to register than LLCs. We’ve already established that. But you should also look at what it takes to maintain your business after the initial formation process.

In many states, you can register a DBA once and not have to worry about doing much afterward. There aren’t any annual reports you need to file or anything like that. 

Even the registration requirements are fairly lax. For example, DBAs in California must be renewed every five years. DBAs in Texas are good for ten years before a renewal is required. 

The ongoing requirements to maintain an LLC are a bit more involved. Most states require an annual report, annual fee, state taxes imposed on your LLC, and more. You’ll also have to keep a registered agent on file with the state for the lifetime of your LLC. This is an extra cost to consider and a requirement for you to remain compliant. 

Ultimately, LLCs require more paperwork and ongoing costs to maintain compared to DBAs. 

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