Do You Need a License for a Home Business?

The layers of rules that may apply

Home businesses can be subject to local business licenses, zoning rules, state registrations, tax permits and industry-specific licenses. Check each level.

Think in layers:

• City or county. A general business license or tax certificate is common. Zoning rules may limit what you do at home.
• State. Business entity registration, sales tax permits, employer accounts and professional licenses.
• Federal. An EIN if needed, and special licenses for a few industries such as alcohol, firearms or certain transportation.
• Industry. Contractors, cosmetologists, child care providers, food producers, real estate agents and many others need their own licenses.

Requirements vary, so check with your local government and state agencies. Our overview how to get a business license walks through the process.

Zoning and home occupation rules

Many cities allow home businesses but limit customer visits, signs, employees, noise, deliveries and the share of the home used.

Even a quiet business may be restricted by zoning. Typical limits include no or few clients visiting, no outdoor signs, limits on non-resident employees, and parking rules. Some cities require a home occupation permit.

If you rent, check your lease. If you live in a homeowners association or condo, read its rules too. Call your local planning or zoning office and ask plainly: "I want to run this kind of business from my home. What do I need?" See small business zoning laws for more.

Register your business and get tax IDs

Choose a structure, register your name, get an EIN if needed and set up state tax accounts for sales tax or payroll.

The usual order:

1. Check that your name is available. See checking business name availability.
2. Choose a structure such as sole proprietorship or LLC. See choosing the right entity.
3. Register with your state or county, including any assumed-name filing.
4. Get an EIN from the IRS if you need one. See IRS Form SS-4.
5. Apply for a sales tax permit if you sell taxable goods or services.
6. Open a business bank account.

See how to register a business for state-by-state basics.

Industry licenses and insurance

Regulated fields need professional licenses, and nearly every home business should review insurance, since home policies often exclude business activity.

Examples of fields with licensing: construction and trades, cosmetology, child care, food production, health services, real estate, financial services and many consulting roles. Selling food from home may fall under cottage food laws with strict limits.

Also check insurance. A standard homeowners or renters policy may not cover business equipment, liability from clients or lost income. Ask your agent about a home business endorsement or separate coverage. See getting business insurance and types of business insurance.

Taxes and keeping it legitimate

Report all business income, keep records and consider whether home office deductions apply. Ask an accountant about your specific situation.

A home business is still a business for tax purposes. Keep business and personal finances separate from the start. Track income, expenses and mileage. A portion of home costs may be deductible if you meet the IRS rules for a home office, but the rules are specific, so check with your accountant.

Read separating business and personal finances, tax write-offs for the self-employed and small business tax deductions. Renew licenses on time. Many have annual fees and deadlines.

When the business outgrows the spare room

Growth may require a lease, equipment or inventory. Plan the payback before you take on fixed costs.

Many owners move out of the house when they need storage, staff or a place to meet clients. Rent and build-out are fixed costs, so be sure revenue supports them. See choosing a business location and how to choose a business location.

If funding helps, ROI Funder places working capital, equipment financing and a line of credit for businesses with 6+ months in operation, $20,000+ monthly revenue and 500+ FICO. It does not place startup loans for newer businesses. A soft credit pull applies, with no obligation.