For many people who consider becoming entrepreneurs, the idea of running a home-based business is attractive because they believe that it is much simpler to open and register it compared to traditional businesses. After all, you quietly work from home, do not have an office building and employees, and so you do not need to fill in tons of paperwork.
Actually, in the eyes of the law and the IRS, even a home-based business is treated just like any other type of business. There are various licenses and permits required, some form of incorporation, and different kinds of ongoing statement to fill in and submit. It is very important to follow the rules, and apply for and obtain every permit necessary before you start operating your business. Otherwise, you may face serious fines and penalties.
Of course, there are various requirements from state to state, but the basic types of licenses are the same all over the territory of the United States. So, if you plan to open a home-based business, you should read this article carefully and know what you need to expect in terms of getting all the approvals necessary to operate your business legally.
1. General Business License
This type of license is required by your local city or county office. It is an annually renewable license that gives you the right to run a business in the respective administrative area. There are variances from state to state in terms of documents and forms required to submit in order to obtain this license, but you can easily find out the information you need on your local authority’s official website. You will be required to pay a small fee upon each renewal of this license, which is deductible on your business tax return.
2. Sales Tax Registration
If your business will deal with the sale of taxable products (these are usually physical products, as opposed to digital products) even if the sale is done online, you are still required to collect a sales tax from your customers. In some states, the sale tax is collected even for services, so you should obtain a list of all products and services subject to the sales tax in your local area. If your products or services fall under this category, you will have to apply for a tax permit, which gives you the legal right to collect the sales tax.
3. Professional or Occupational Licensing
For consultancy or professional services home-based businesses, you will also need to obtain a license stating that you are authorized to supply those services. Some of the occupations requiring professional state licensing are, for example: accountant, architect, lawyer, tattoo artist, massage specialist, nutritionist, etc.
4. Home Occupation Permit
In many local jurisdictions, you are required to obtain a permit for running a business in a residential area. The reason behind this is that by running a business you are likely creating more traffic, noise, etc. than usual in your neighborhood. Therefore, there are limitations in place for the type of activities you are permitted to perform in your home. If you live in a neighborhood under the administration of a Homeowners’ Association, you should also obtain the HOA approval for opening your home-based business.
5. Signage Permit
If you want to advertise your business by placing a sign of any shape and size on your property, you should apply for a permit in this respect. Every city has signage restrictions, and they are particularly strict for residential areas. Before you order any signs, find out what your local regulations state in terms of size, shape, placement and number of signs allowed on your property.
All these permits will take some time before you obtain them and will require you to fill in various forms and to pay fees. However, you cannot open and run your home business until you obtain all of them.