What Is a Business License?
A business may need just a basic license to operate, but some enterprises require a more complex permit to operate, such as an environmental permit. The types of regulations, licenses, and permits can vary widely based on federal, state, local, and industry requirements and laws. A business license also indicates to your clientele that you’ve legally registered your business. It’s a statement that you recognize all local, state, and federal regulations for your business and that you’re willing and able to comply with the laws.
Federal Licensing Requirements
All businesses must apply for and acquire a federal Employer Identification Number (EIN) to operate in the U.S. This is the business version of a Social Security number for individuals. You can apply for an EIN online at the IRS website. You or the individual who’s submitting the application for an EIN must personally have a Social Security number or other taxpayer identification number. A federal business license or permit will also be required if your type of business is highly regulated by the federal government. This would be the case if you’re dealing in alcohol, firearms, investment counseling, or broadcasting. The issuing agency will vary depending on the nature of your business. You would apply to the Alcohol and Tobacco Trade and Tax Bureau if yours is a retail establishment that sells alcoholic beverages.
State Licensing Requirements
The majority of states also require some type of business licensing when a new business is registered, whether it’s operated out of the home, on the internet, or out of a commercial location. Most business owners should expect licensing to be a prerequisite for operating the business. As with federal requirements, businesses that sell products or services regulated by the laws of that specific state will require a state license or permit. This includes hair salons and cosmetology centers, private investigators, security guards, account firms, real estate agents, medical providers, building contractors, and auctioneers. A business that is required to collect sales tax from customers may be required to register with and be certified by the state as well.
Local Licensing Requirements
Your county or municipality may also require a license or permit for your business. You may have to register your trade name with your county and take care of this first before you apply for any type of state registration. Local business licenses as well as local business permits are usually simple to obtain and low in cost.
Claiming a Tax Deduction for the Cost
The cost of obtaining and renewing required licenses and permits for your business is tax-deductible at the federal level as a “Section 197 Intangible” expense, but you must amortize the expense over 180 months (15 years). This can be a complicated process, so your best bet is to consult with a tax professional to be sure you get it right. Also make sure you take advantage of every other business-related deduction available to you.
