Disclaimer: Please note that this article contains general legal information and doesn’t contain legal or tax advice, and isn’t intended to constitute legal or tax advice.
It’s possible that your freelance businesses operated from home may require a specific license, permit, or registration. A great number of businesses must obtain a variety of business licenses on a few levels before they can start to operate. This means that business license requirements are a fact of life for nearly every size and type of business in the US, as well as in other countries around the world.
In this article, you’ll find out what types of licenses, permits, and registrations your freelance business may need, what to pay attention to to be compliant with the license requirements, and what the consequences of non-compliance are for you as a freelancer.
Do I Need a Business License for Freelance Work?
A business license is a form of permission issued and required by a federal or state agency, or other government entity. It enables you or your business to engage in a specific business activity within a jurisdiction. Local, state, and federal agencies issue various types of business licenses and permits for a variety of business activities.
Although not all types of businesses are required to hold a license, some may even need more than one according to the applicable federal, state, town/city, or county regulations.
Whether you need a business license as a freelancer depends, in particular, on the location and type of business you want to start. Depending on these factors, you may need federal, state, or local (i.e. town, city, or county) licenses.
If you’re a freelance photographer wondering whether you need a photography business license, check our dedicated piece on key issues to watch out for before starting your photography freelance business.
What Licenses Does My Freelance Business Need?
Federal Business Licenses and Permits
As a freelancer, you’re far less likely to be required to obtain federal licenses than state and local ones. However, if you operate as an LLC, partnership, or corporation, there is at least one federal registration required which is a federal Employer Identification Number (EIN). Note that as a sole proprietor you’re only required to have an EIN if your freelance business has an employee and if you file any excise or pension plan tax returns. Sidenote: you still can get an EIN as a sole proprietor if you’d like to.
The best way to determine what licenses your freelance work requires is to start at the federal level and work your way down to your business address. Review the list published by the U.S. Small Business Administration to see if any of your business activities need a business license at the federal level. Next, check with the right federal agency on how to apply for them.
State and Local Business Licenses and Permits
In the US, pretty much every state has numerous licensing requirements. As I mentioned before, the license you apply for will vary depending on where it was issued or the type of business you’ll be conducting.
In general, states license a wide variety of professions so remember to check if you need to get a professional/occupational license.
Additionally, as a freelancer, you may need a license from your local government (city or county) such as a zoning permit. A zoning permit authorizes your business to use the building or ground where your freelance business is located. Note that zoning laws are locale-specific, and can even vary from block to block!
This also means that one or even more state and local licenses may be required for your freelance work.
Below you’ll find examples of the most commonly-required business licenses, permits, or registrations for freelancers in the US:
|Common Licenses and Permits for Freelancers|
|General Business License|
|Sales Tax Permit|
|Professional and Trade Licenses|
|Home Occupation Permit|
- Fictitious Business Name License or Registration (DBA) – In some states, if your business is operating under a fictitious name (a name other than your name if you are a sole proprietor), you may need to obtain a Doing Business As (DBA) license or registration.
Many freelancers decide to operate their freelance business under a fictitious name mainly because their clients recognize the business more easily this way instead of with their own name and surname. Do you already have a name for your freelance business?
- Sales Tax Permit – In many states, a sales tax permit is required for nearly all products and services sold by a business. Again, the requirements and costs of a sales tax permit will vary according to state tax laws in which you’re operating your freelance business. No matter what, definitely check if you need a sales tax permit in your location!
When Do I Need to Get My Freelance Business License?
Remember that before you apply for the license required for your freelance work, you’ll need to register your freelance business. While there are lots of different types of business structures, sole proprietorship and LLCs are the two most common structures for freelancers. Check what’s best for you – it’s crucial to get the proper legal foundation set up for your own business.
Obtaining Licenses: Start Earlier and Be Ready for Your Opening Day
It’s most critical to address licensing needs before you start freelancing. Give yourself enough time and apply in advance – a while before you’re planning your first project or other freelance work.
To obtain the proper license for your freelance business you have to be aware of all the activities that your business will undertake. You may need specific permits for different business activities.
If you fail to determine what licenses are required and to allow sufficient time to obtain them, you could be forced to delay opening your freelance business. Note that in most cases, you can be fined if you open your business before all the necessary licenses, permits, and registrations have been issued. These fines can be steep and add up quickly.
Licensing Throughout the Business Life Cycle: Renovation and Update
Once you’ve sorted the initial licenses to start your freelance work, the need to pay attention to them doesn’t stop. Some licenses need to be periodically renewed, or updated when any information about your freelance business changes. Additionally, if the business expands either to new locations or by offering new products or services, you may have to apply for additional permits.
What Do I Need to Get Business License for My Freelance Work?
Give Yourself Some Time
Locating and obtaining all the necessary licenses for your freelance business can be one of the most time-consuming tasks you face while setting up your business. However, don’t let this demotivate you – just make sure to arrange and reserve enough time and resources to ensure you start off on the right foot.
Many licenses and permits must be obtained at the local (county and city) level. Most challenges for freelancers in terms of time and money (and annoyance) appear on this level. Identifying the business licenses you need can be challenging, as quite a few jurisdictions and agencies may be involved. That’s why the earlier you start seeking information about business license requirements, the better.
Have Some Money Set Aside
Acquiring all the necessary licenses and permits can be costly. You may have the option to pay for them on an annual basis or as a one-time fee.
My Tip: Make sure to check which costs of obtaining your business license constitute deductible business expenses. Keep a copy of all of these license applications with your business records, along with receipts showing payment of any fees.
Consequences of Not Having Your Freelance Business License
Failure to have the necessary business license can result in hefty fines, or even your freelance business being shut down. The same goes when you fail to have your business license up to date. If a business license is legally required in your profession, sector, or occupation, don’t put yourself at risk – get them in time!
As a freelancer who’s just starting out, even a small fine could set you back and be quite demoralizing. In more extreme circumstances, especially with a few violations, you could face criminal penalties, lawsuits, arrest, or even your business being shut down where your assets are seized. Closure of your freelance business doesn’t only cost you lost revenue, but can also tarnish your business’s reputation.
I’ve Got My Freelance Business License! What Now?
Once you have all the licenses, permits, and registrations necessary to open your freelance business, make sure you know which licenses must be displayed for your clients and follow the rules binding you. However, obtaining the required licenses before opening is only the start.
To be able to stay on track with your business license duties you need to pay attention to the following:
- Business License Renewal:
- TIME: Many business licenses are valid only for a specified period of time and have to be renewed annually.
- LOCATION: Some business licenses, particularly local ones, are valid only for one specific location. If you open a new location for your freelance business, especially if it’s in a different city, you may have to apply for another license.
- Business License Update:
- Changes in your freelance business operations.
- If you expand your business, whether it’s launching a new product or service line or opening a new location, you may have to obtain new licenses or amend existing ones.
- Other changes in your freelance business operations that can trigger the requirement for new or amended business licenses may include: incorporating your sole proprietorship, adding an additional business owner, or changing the business’s name.
- Changes in laws and regulations.
- Licensing laws can change over time. This means that you have to be alert in order to comply with the currently binding regulations in your jurisdiction. I recommend checking the website of the government bodies that issued your licenses every now and then. You could also hire a professional to do so on your behalf (such as a CPA).
- Changes in your freelance business operations.
My Tip: To ensure your freelance business licenses are all still current and up-to-date, put the following simple procedures in place:
- Keep a master list of all dates and deadlines for renewals and updates of your freelance business licenses.
- Set up a series of reminders for any pending renewals and updates in advance of deadlines.
- Add “prepare documentation required for renewal” to your to-do list after the first reminder.
- Also, add “update business licenses” to your to-do list especially when you make a specific change regarding your business or your business operations.
FAQ – Business License for Your Freelance Business
In the US in most states, you’ll need at least a seller’s permit to sell online. License and permit requirements are especially intended to protect consumers, even when your business is conducted primarily (or entirely) online. Note that your location, the industry in which you sell online, and in some jurisdictions even how much you sell, determine whether you need a license and what kind. Read more here about what licenses your freelance business may need.
To sell goods, including selling them on Instagram, most states in the US require you to at least get a seller’s permit which lets you collect sales tax from customers. Whether you need a business license to sell on Instagram mainly depends on your location, the product or service you’re selling, and in some jurisdictions on how much you sell. Find out more about when you need to get your freelance business license. Note that if you sell your products on Instagram to international clients, you might have to account for consumer law in other countries (apart from your local laws) as well.
You may need a business license to sell on Etsy, depending on:
• Your location – Some jurisdictions have stricter regulations than others.
• Product or service you’re selling – Some specific types of products and services are more strictly regulated.
• How much you sell – Some jurisdictions don’t require you to have a business license until your sales reach a certain threshold.
Running your own freelance business can get stressful, especially when it comes to dealing with your freelance finances and taxes. However, the legal tips and knowledge will stand you in good stead throughout the life cycle of your freelance business.
Knowing how to properly invoice your clients is crucial both to protect yourself and ensure an ongoing cash flow for your business. Check how to invoice for freelance work and get a free template of the invoice to make sure you take good care of your freelance venture!