Start it. Run it. Close it clean.

Pick your business setup

Five setups cover nearly every trade business. The differences that matter: who gets sued, and how the profit is taxed.

Sole proprietorship. You and the business are the same thing. A sole proprietor reports business profit or loss on Schedule C with Form 1040 and figures self-employment tax on Schedule SE. No separate business return. Source Cheapest to run, and your personal assets stand behind every job. Most one-truck operations start here; fewer should stay here.

LLC. The workhorse. A state-registered company that separates business debts from your house, while the taxes stay simple. Federal default: a single-member LLC is a disregarded entity taxed on the owner's return; a multi-member LLC is taxed as a partnership unless it elects corporate treatment on Form 8832. Source You form one at your Secretary of State, on the state page.

Partnership. Two or more owners without a corporation. A partnership files Form 1065 annually but pays no income tax itself; profits or losses pass through to partners on Schedule K-1. Partners are self-employed, not W-2 employees. Source If you and a buddy split jobs and money without paperwork, the IRS may already consider you a partnership, with a return due it never received. Put partnerships in writing.

S corporation. Not a company type: a tax election an LLC or corporation files. S corporations pass income through to shareholders' personal returns. Limits: domestic, 100 or fewer shareholders, one class of stock, allowable shareholders only. Elect by filing Form 2553 signed by all shareholders. Source File Form 2553 no more than 2 months and 15 days after the start of the tax year the election takes effect (March 15 for calendar-year companies), or anytime the year before. Late-election relief exists, generally within 3 years and 75 days. Source

The catch that surprises everyone: An S election means running payroll: the IRS requires reasonable compensation to a shareholder-employee for services before non-wage distributions, and can reclassify distributions as wages. Source An S election can save self-employment tax on strong profits, and it adds payroll, a salary decision, and accounting cost. Run the numbers with a tax pro first.

C corporation. Rare for small trade shops. C corporations pay income tax on profits, and profits can be taxed again when paid out as dividends. The SBA structure chooser compares liability and taxation across all five setups. Source

The opening checklist, in order

Ten steps, in the order that avoids re-doing paperwork. Steps 1, 4, 5 and 7 live on your state page.

1. Form the company with your state's business filing office, usually the Secretary of State. Name search first, then the LLC filing.
2. Get the EIN, free. An EIN is free. The IRS states you never have to pay a fee for an EIN. You need one to hire employees, run a partnership or corporation, or pay certain excise taxes. Apply online at irs.gov; one EIN per responsible party per day; form your LLC with the state before applying. Source
3. Open a business bank account. Banks want the state filing and the EIN letter. Never run job money through a personal account; it undercuts the liability protection you just paid for.
4. Sort your license before you bid. In many states, bidding above the threshold without a license is itself the violation. Thresholds run from $1,000 to $50,000 depending on the state, and some states register rather than license. Check yours before the first estimate goes out.
5. Register for state taxes with your revenue department: sales or use tax where it applies to your work, and withholding if you will run payroll.
6. Buy the insurance the work requires. General liability first, workers comp per your state's trigger, auto for the truck. The insurance chapter translates each one.
7. Check workers comp before the first hire, not after. Several states require it at one employee, and a few run state funds you must buy from.
8. Set up books from day one. Separate account plus any real bookkeeping system beats a shoebox of receipts in April. Save every materials receipt; they are deductions.
9. Use a written contract on every job. Scope, price, draw schedule, change orders, and who pulls the permit. The permit line matters: pulling a permit for an unlicensed operator can put your license on the line.
10. Calendar the quarterly tax dates. Sole proprietors, partners, and S-corp shareholders generally must pay estimated tax if they expect to owe $1,000 or more; corporations at $500. 2026 due dates per Form 1040-ES: April 15, June 15, September 15, 2026, and January 15, 2027. Source

Insurance, translated

Nine terms, what each actually pays for, and who forces you to carry it. No sales pitch: none of these descriptions came from an insurance marketer.

The federal layer

What Washington expects from a trade business, whether or not you ever leave your county. Three of these rules changed recently; the versions below were checked July 28, 2026.

Self-employment tax. The self-employment tax rate is 15.3 percent: 12.4 percent Social Security plus 2.9 percent Medicare. It applies once net self-employment earnings reach $400, computed on 92.35 percent of net profit. Source This is the number that shocks first-year sole proprietors; it rides on top of income tax.

Paying subs right. Collect Form W-9 from each sub before the first check; it supplies the TIN you need for information returns. If a payee fails to furnish a correct TIN, the payer must backup-withhold at 24 percent. Source Collect the W-9 before the first check clears, because nobody returns paperwork after they have been paid.

Sub or employee. The IRS common-law test weighs behavioral control, financial control, and the relationship of the parties; no single factor decides it. Either side can file Form SS-8 for an IRS determination. Source Calling someone a sub does not make them one: control of how the work gets done is what counts, and misclassification lands back-taxes and penalties on you, not the worker.

Lead paint, the one remodelers miss. Anyone paid to disturb paint in pre-1978 housing or child-occupied facilities must hold EPA Lead-Safe firm certification, with certified renovators on the job. This catches remodelers constantly. Arkansas has no authorized state program, so EPA administers RRP here. Source

If you want government work. To bid federal work you must register at SAM.gov, which issues your Unique Entity ID. Registration is handled on sam.gov directly. Source On federally funded construction contracts over $2,000, contractors and subs must pay locally prevailing wages and fringes per DOL wage determinations. Overtime rules add time-and-a-half over 40 hours on prime contracts above $100,000. Source

Your first employee

The day you hire, five systems switch on. All five, with the official page for each.

Paperwork at hire. Each new employee completes Form W-4 so the employer can withhold the correct federal income tax. The employer keeps it on file. Source Every employer completes Form I-9 to verify each hire's identity and work authorization. The form is retained by the employer, never filed with the government. Check uscis.gov/i-9 for the current edition. Source

Report the hire. Federal law requires reporting new hires within 20 days to the State Directory of New Hires where the employee works; many states set shorter deadlines. Your state's link is on the state page. Source

Payroll taxes. Employers file Form 941 quarterly to report withheld income tax plus Social Security and Medicare. Deposits go by electronic funds transfer on a monthly or semiweekly schedule set before each year using the lookback rules in Publication 15. Source FUTA is 6.0 percent on the first $7,000 of each employee's wages; the state-unemployment credit usually leaves a 0.6 percent net rate. Employer-paid only, never withheld from pay. Source

Workers comp. State law, and the trigger varies: one employee in some states, three or five in others, and four states run state funds you buy from directly. Your state's exact rule: state page.

OSHA, the honest version. If your company had 10 or fewer employees at all times last year, you do not keep routine OSHA injury logs. Construction is NOT on the low-hazard exempt industry list, so at 11 or more employees a construction employer keeps OSHA 300, 301 and 300A records. Source The Job Safety and Health: It's the Law poster must be displayed where workers can see it. It is free from OSHA; never pay a vendor for it. Source OSHA 10 and 30 cards are voluntary under federal law and do not satisfy any OSHA standard, but some states, cities, and many GCs require them by contract. Source

Partnering without getting burned

Most trade partnerships start as a handshake and end as a lesson. The handshake problem is federal as well as personal: split profits with someone informally and the IRS may treat you as a partnership that owed a Form 1065 return. Source

If you team up on one job, write a single-project agreement: who bids it, whose license and insurance carry it, who holds the money, how profit splits, who eats overruns. Joint work under one permit means the license holder answers for all of it.

If you sub work out, behave like the GCs that keep subs happy: written scope with quantities, pay terms with dates, a W-9 and a certificate of insurance collected before work starts, and additional-insured endorsements where the contract demands them. The COI explainer in the insurance chapter covers why the endorsement, not the certificate, is what protects you.

If you take sub work, read the flow-down clauses: pay-if-paid language, retainage, and notice deadlines for extra work. Preserve your lien rights by sending any required preliminary notices on time; lien law is state-specific, so ask your state's licensing board or a construction attorney where the deadlines sit.

Closing a business clean

Companies that just stop answering the phone keep generating penalties for years. The clean shutdown runs in this order.

1. Finish or formally hand off open jobs, and put warranty obligations in writing. Unfinished contract work is the top source of post-closure lawsuits and license complaints.
2. Stop new liabilities: cancel bids, let suppliers know the account is closing, collect your receivables while the phone number still works.
3. Run the final payroll, issue final W-2s and any 1099-NECs, file the last Form 941 marked final, and close the withholding and unemployment accounts with the state.
4. File final tax returns with the final-return box checked: Schedule C on your 1040, or the last 1065 or 1120-S. The IRS closing checklist walks each form. Source
5. Dissolve the entity with the state, through the same office that formed it, and file any required final franchise or annual report. Skipping this keeps the annual fees and penalties accruing on a company that no longer earns.
6. Surrender or retire licenses and registrations: the contractor license, local business licenses, sales tax permits. Tell the licensing board; a license left dangling can be borrowed by someone you never met.
7. Handle insurance tails. Completed-operations claims arrive years after the last job. Talk to your agent about how long general liability tail coverage should run, and keep the workers comp policy through the final payroll date.
8. Keep the records: contracts, job files, tax returns, payroll and insurance policies. The IRS records page gives the timeframes by document type. Source