Do I Need a License to Open a Home Business?

What You Need to Know About Home Business Licenses

Business Licenses
With a license, you're open for business. Credit: Daniel Grill | Getty Images

Many people who make money at home, don't start out wanting to start a business. Often they make a few bucks selling their home made goods to friends and family, or take some extra work on the side. But if your goal is to make money, even just a bit extra to help with finances, it's possible you'll need a business license. 

The problem with starting a business without a license is that if you get caught, there might be penalties and/or legal hassles.

Because of the potential risk, it's worth it in the beginning to find out what's needed. In most cases, you'll fill out a form, pay a fee, and you'll be in business.

Most localities that regulate business require a license. It's possible you live in one of the few a places that don't (yet) have businesses licenses, but odds are your city or county requires one.

The good news is that getting a business license is usually easy and affordable. You can find out about registering your home business by visiting your city or county's website online and looking for information regarding small business. The Small Business Administration has business license resources for all 50 states.

Why are Business Licenses Needed?

Many people are tired of government regulation and control, which is really what getting a license is about. However, as a consumer, you'll see that business licenses are a good thing.

A business licenses is necessary because:

  1. It gives notice to your local government what you're doing and therefore will hold you accountable for what you do, and insure you don't do anything to harm the public.
  2. It's a source of revenue for your city or county, through which it funds schools, libraries and other resources. 

    Benefits of Having a Home Business License

    Properly registering your business offers multiple benefits. In addition to your conscience resting easier, a license offers validation and gives you the documentation necessary to apply for a business bank account and business loans, if needed.

    How to Get a Home Business License

    Getting a license is usually straight forward, and you might even be able to do it online. Before applying, you need to have a business name and determine your business structure. The steps to getting your license usually involve:

    1. Go online or call your city or county office that deals with business licenses to learn the process.
    2. Fill out a form with your business information.
    3. Pay a fee, usually between $25 and $50.

    Once you have your license, you're in business. Each year you do business, you pay a fee based on your earnings. 

    Other Registrations or Permits You May Need

    Having a home business license puts you in business, but depending on the business you start, there are other licenses and permits you may need. Here's a list of possible additional registrations that may be required:

    1. Occupational license. Many states regulate certain types of jobs. For example, you may need a permit to sell food, work with people (daycare, therapy etc), and financial work. Search your state and "occupational licenses" (i.e. California Occupational Licenses) on your favorite search engine to find information for your state.
    1. Sales tax permit. If you're selling tangible goods (items you can hold in your hand) and your state collects sales tax, you'll need to obtain a sales tax permit through your state's tax comptroller or tax office. You can probably apply and submit sales tax you collect from customers online.  
    2. Zoning permit or waiver. Zoning dictates what types of establishments can exist in areas of your city, town or county. In most cases, areas zoned residential don't allow for businesses. However, if your business doesn't require a sign, increase traffic or involve dangerous items, you can likely get a waiver. Contact your city or county's zoning department to find out what, if anything, you need. Don't skip this. If you fail to get the proper zoning okays, you can end up paying fees or having to close down if your locality finds out.
    1. Federal Employer ID Number (FEIN). An FEIN is a social security number for a business. It is free and can be obtained online. Sole proprietorships don't need one, but it's recommended so you don't have to use your social security number for business purposes (i.e. to fill out W-9). LLC and other business structures, especially if you have employees, require an FEIN.
    2. Health Department Permit. If you sell food that you create in your home or run a home-based catering business, you may need a health department permit and be required to adhere to a set of rules, such as storing ingredients for home and business separately. 
    3. Doing Business As (sometimes called "assumed name" or "fictitious name" statement). If your business name doesn't include your given name, your city or county may require you to file a doing-business-as statement with your county clerk. This statement is also published in the local newspaper letting the community know who owns the business. 
    4. VAT tax for EU sales. If you sell goods to EU consumers, you might be required to pay a VAT tax. If you don't want the hassle, use a payment provider that collects and pays it for you, such as Amazon or ClickBank.

    Updated January 2017 by Leslie Truex