Using Square as a US Sole Proprietor

Juggling payments, finances, and taxes is the classic challenge for any US sole proprietor. You need tools that simplify, not complicate. Square offers a tempting all-in-one system for taking payments, but mastering its financial side is key to keeping your business healthy and your cash flow positive.

Think of this guide as your roadmap to setting up and managing your Square sole proprietor account the smart way. It covers everything from setup to savvy financial management.

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Key Takeaways

Is Square the right tool for your sole proprietorship?

A sole proprietorship is the simplest business structure: it's just you, the owner, with no legal hoops separating you from your business. This makes getting started a breeze.

Square offers tools well-suited for this model. Key features include payment processing for in-person and online sales, a point-of-sale (POS) system, and an online store builder. ¹

The main draw of using Square is its integrated, accessible system, which makes accepting various payment types straightforward. However, the convenience comes with a cost. Be sure to consider the transaction fees for each payment method before you commit.

Square Account Options for Sole Proprietors

Square offers several account tiers designed to scale with your business, making it easy for sole proprietors to find a plan that fits their needs and budget.

• Square Free Plan: Square's no-cost baseline account includes a free point-of-sale app, invoicing tools, and access to the Square Card Reader, making it a solid starting point for new sole proprietors.
• Square Plus: Priced at $29 per month per location, this mid-tier plan adds advanced reporting, more customization options, and lower processing rates for businesses with higher transaction volumes.
• Square Premium: Square's top-tier plan is available at custom pricing and is best suited for sole proprietors whose annual card processing exceeds $250,000.
• Square for Retail: This industry-specific plan starts at $60 per month and includes inventory management tools, vendor tracking, and purchase order features tailored for product-based businesses.
• Square for Restaurants: At $60 per month, this plan offers table management, kitchen display system integration, and online ordering tools designed for food-service sole proprietors.
• Square for Appointments: Starting at $29 per month, this plan is designed for service-based sole proprietors and includes calendar management, automated reminders, and client booking features.

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How do I set up Square as a sole proprietor?

Setting up your Square account correctly is your first step toward hassle-free payment processing. The process requires specific personal and business information to ensure you're compliant and secure.¹

Step 1: Gather Necessary Information

Before you start, have your full legal name, home address, and date of birth ready. You will also need your Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN) to act as your Taxpayer Identification Number (TIN).

Step 2: Create Your Square Account

Head to the Square website to kick off the sign-up process. You'll be prompted to enter your email and create a password. Using accurate information here is crucial to avoid any hold-ups during the verification stage.

Step 3: Configure Your Business Profile

Next, it's time to describe your business. When asked for your business type, select "Sole Proprietor" or "Individual."

Step 4: Link Your Bank Account

You'll need to link a US-based transactional bank account to your Square account. This is where Square will send your money. As a best practice, use a dedicated business bank account to keep your financial tracking crystal clear.

Step 5: Verify Your Identity and Business

To comply with financial regulations, Square must verify your identity. This process is usually wrapped up within a few business days. You'll receive a confirmation email as soon as your account is activated and ready to start accepting payments.

How should you manage your Square income and business finances?

Getting paid is great, but keeping your business profitable is the real goal. Smart financial management is your secret weapon, and it involves understanding your fees, paying yourself correctly, and tracking everything that comes in and goes out.

Understanding Your Payments and Fees

Square charges processing fees for every transaction, which can add up. Factoring these fees into your pricing and financial forecasts isn't just a good idea—it's a necessary step for maintaining healthy margins.

Fees are subject to change. Always check the official Square website for the most current rates.

How to Pay Yourself

As a sole proprietor, you don't get a traditional salary. Instead, you pay yourself through an "owner's draw." This is simply a transfer of funds from your business bank account to your personal one. It is crucial to document these transfers meticulously for accurate bookkeeping.

Separating Business and Personal Finances

Don't mix business with pleasure—or at least, don't mix your business and personal bank accounts. Keeping them separate is the golden rule of small business finance. By linking a dedicated business account to Square, you ensure all your revenue lands in one place, which simplifies accounting, tax prep, and getting a clear financial picture of your business.

Tracking for Tax Time

As a sole proprietor, you're responsible for paying self-employment tax (for Social Security and Medicare) on your net earnings. Staying organized isn't just good practice—it's a money-saver. You can lower your taxable income by deducting ordinary and necessary business expenses.

Common deductions for a Square-based business include:

• Square processing fees
• Business bank account fees
• Website hosting or e-commerce platform costs
• Marketing and advertising expenses
• Business-related software and subscriptions
• Home office expenses (if applicable)

To get a rough idea of your tax burden, you can use a simplified calculation. The self-employment tax rate is 15.3%, but it's only applied to 92.35% of your net business earnings.

For example, if you have $20,000 in net earnings:

1. $20,000 (Net Earnings) x 0.9235 = $18,470 (Taxable Amount)
2. $18,470 x 0.153 (SE Tax Rate) = $2,825.91 (Estimated Self-Employment Tax)

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Wise Business can help you save big time on international payments.

Wise is not a bank, but a Money Services Business (MSB) provider and a smart alternative to banks. The Wise Business account is designed with international business in mind, and makes it easy to send, hold, and manage business funds in 40+ currencies.

Signing up to Wise Business allows access to BatchTransfer which you can use to pay up to 1000 invoices in one go. This is perfect for small businesses that are managing a global team, saving a ton of time and hassle when making payments.

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• Auto-conversions: Don't like the current currency exchange rate? Set your desired rate, and Wise sends the transfer the moment the rate is met

• Free invoicing tool: Generate and send professional invoices

• No minimum balance requirements or monthly fees: US-based businesses can open an account for free. Learn more about fees here

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Final Thoughts

For US sole proprietors, using Square effectively means pairing its convenience with savvy financial habits. By setting up a dedicated business bank account, tracking expenses diligently, and keeping clean records, you'll have a clear view of your financial health and be better prepared for whatever comes next.

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Frequently Asked Questions (FAQs)

Do I need an EIN to use Square as a sole proprietor?

No, an SSN or ITIN is all you need to sign up for Square as a sole proprietor.² After your account is approved, you can add an Employer Identification Number (EIN). While optional, getting an EIN from the IRS is a smart move. It makes your business look more official and is often required to open a business bank account.

How do I set up my Square Online store as a sole proprietor?

You can build your Square Online store directly from your Square Dashboard. The platform guides you through choosing a design, adding products or services, setting up shipping or pickup, and finally, publishing your site. Visual guides are available to walk you through each step of the process.³

Can I use Square if I’m just starting as a sole proprietor?

Yes, Square is an excellent choice for new sole proprietors. The platform is designed for an easy and intuitive setup, allowing you to start accepting payments almost immediately.

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Sources:

1. Onboard your sole proprietorship to Square | Square
2. Sole proprietor with EIN - The Square Community | Square
3. Sell Items and Set Up Square Online | YouTube