Do You Need a Home-based Business License?
As you develop a blog or business, you need to ask yourself if this adventure will make income. For many, having a blog/biz is a hobby. Yet, there is a growing number of home-based moms who make an income. Actually, there can be great income success having an at-home business.
If you intend to make an income, you need to have a business license. I know friends who decorate cakes, make crafts, and create jewelry – all for profit. Many do not have a business license. Yet, this can get you into trouble. For how inexpensive it is to get a business license, it is worth the dedication to do so. Actually, displaying and stating you are an official business gives you more authority and accountability.
Many new at-home businesses function without the necessary licenses and permits. Yet, it is your responsibility to get the necessary documents when making income from a home-based business. If caught, a business can face penalties and even have business shutdown. It’s worth the time and follow-thru to get the required licensing now, than when it is too late.
The Small Business Association (www.sba.gov) is your best resource for finding out the specific requirements and zoning laws in the city and state you live in. Yet, there are some basic requirements that are common to all states.
NOTE: Before seeking a license or permit, double and triple check that the name of your business does not conflict with other business. Check on www.godaddy.com to see if the name is available as a URL. Also, Google search and see if there is a conflict. If name you want is not available as a .com, but available as a .net, .org., .us – I would encourage you not to pursue it. You don’t want a conflict of interest and most people consider the .com as more established.
1) Home-based Business License
A business license is required if you intend to advertise as an income-making entity. It is not determined if you will actually make a profit, as many first business do not turn a profit the first year. My first business did not show a profit for two years due to the wonderful tax deductions I was able to take. It’s a benefit of having a business license, as you will receive deductions for supplies, home office, home expense, etc.
A general business license will need to be renewed every year. You will also need to turn in taxes from the profits make during the year. You can pay these quarterly or annually.
The sales tax owed is different that the April 15th tax forms of your home and Schedule C business.
Below are some of the business licenses or permits you will possibly need:
- Resellers license if buying products wholesale and selling.
- Professional license if having a specific trade that requires a license. An example is a hair stylist, financial advisor, dietician, auto repair, attorney, real estate agent, etc.
- State License if running a care facility like a day care center, or elder care.
- Sales Tax License if selling goods or services, especially if buying products wholesale and selling for profit. Some cities combine the business license along with the sales tax.
- Health and Safety Permit if operating a business that requires an inspection from local fire department.
- Food or Beverage Sales Permit if you plan to make and sell food or beverage products, or make meals like a catering business. A health inspector will need to approve your home.
- Sign Permit if you intend to display a sign outside your home.
- Home Occupation Permit: Most local governments require a permit to operate a business from your home. If you are renting/leasing the home, you will need permission from the owner to operate a business in their home. This is especially important if your business will require customers/clients to come to your home (example: home daycare). You may also need special approval if living in a home that has a HOA (Home Owners Association).
2) Need an EIN number or use Social Security Number?:
Most businesses require identification for tax purposes. An EIN number is easy to obtain. A EIN Number is similar to a social security number. Actually, if you file your business as a sole proprietor (with no employees), you won’t need an EIN number. In this case, your SS number will be used. To obtain an EIN (Employer Identification Number), contact www.IRS.gov and request form SS-4.
3) Sole Proprietor, Partnership, LLC, or Corporation?:
Sole Proprietorships: Basically, a sole proprietorship is not a legal entity, and refers to a business which is solely owned by one person. This one person is personally liable for the debts and expenses of this type of business. This is the simplest form for a home- based business to use. There is small cost to have a sole-owned business compared to partnerships, LLC, and Corporations. However, sole proprietorships are problematic because the owner’s personal assets being in jeopardy. You may want to talk to a financial person to give you wisdom on the best choice to make.
Partnerships: This is a business owned by two or more people, who share equally in profits and losses. I personally am not a fan of partnerships. They take mutual respect, understanding and contracts to make sure everyone’s interests are protected.
LLC (Limited Liability Company): This is the middle ground of the sole proprietor and Corporation. You will fill out a tax form as a sole-proprietor but have the protection that you don’t get from a sole-proprietor.
Corporations: These are separate legal entities that are owned by the shareholders. Corporations are much more complex and are typically used by larger businesses. Corporations are expensive and usually not seen in home-based businesses.
When in doubt, seek help from professionals on the most appropriate license classification to make. The nice thing is you can always change it.
I hope this was a help to you as you venture as a home-based business. Don’t let all this overwhelm you. It takes just a day to get it all done and most of it you can do online. If you need inspections, make sure to schedule on a day without other appointments. I also found if you print forms online and have them filled out before you go to your local business license office, it will save a lot of time.
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