As a Freelancer Do I Need a Business License – Freelancing Tip
So, you have decided to join the freelance workforce. But then you stop. You wonder, “As a freelancer do I need a business license?” Relax; you are not alone in facing this bump on the road. A lot of freelancers ask the same thing. Of course, unlike traditional employment, freelancing is a totally different game. You do not have a team of corporate lawyers and accountants doing every legal duty for a business. This time around, it’s all you. You are the business. And if that is so, would you need a business license then?
But first, what is a business license? Why would you need one if you are required to secure it? What is it for?
Business License
A business license is an official document that legalizes your business in a specific city or state. Like any other license, it signifies that you are granted authority to engage in an activity or use something. Business licenses are issued not only to protect consumers, ensuring them of the legitimacy of the establishment, but also for business owners to have security that a government body is regulating the industry.
As a freelancer do I need a business license?
This is a very valid and smart question. But unfortunately, there is no quick answer to this. There are several factors relating to your business that would determine if you do need one. In the U.S., licensing requirements and compliance vary depending on your industry. Federal, state, and local government agencies have different policies, which mainly depend on the type of business you are in. Here are some of the factors that determine whether you need a business license or not:
1. Location
The need for a business license depends on the location of your business. Government regulations differ from country to country, state to state, and local government units. For instance, in the United States, some states issue statewide business licenses, while some states delegate the regulations per city or county. The best way for you to know if you need a business permit is to check your city or county’s website or go to the Small Business Administration (SBA) website if you are doing freelance work from the U.S.
Speaking of location, some other organizations may require other types of licenses or permits. For example, if you are operating at home, you might want to check with your Home Owner’s Association if you need a specific permit. Or, if you decide to hold a coaching business and will need to see different clients, and you live in an apartment building, the building manager might require you to secure a permit since strangers will be entering the premises every so often. Don’t forget to check your rental agreement, too, if you are renting a place.
Again, while a city business license may not apply to your profession, it is always safe to check with your local authorities for other necessary paperwork.
2. Business Structure
The U.S. SBA declares that if you are conducting business as yourself (meaning you are using your legal name), you might not need a business license. However, if you are or will be operating under a business name, then you have to register it as a small business. Do not forget that even if you decide not to get a business license at the moment, you are still required to pay your personal income taxes.
3. Industry
Do freelance photographers need a business license? How about graphic artists?
Take note, that several industries are being regulated by federal laws, like those in broadcasting, tobacco, alcoholic beverages, and gun retail (check the SBA website for a complete list); and some professions that need other types of licenses and permits such as those in the health services and food business.
While this is a general rule, the United States Small Business Administration still recommends that you check your local government, city or county, and state for their business license policies.
One thing you must keep in mind though is that while your industry—mainly if you belong to the visual arts industry, may not be required under a specific agency to register a business permit, it may be wise to secure a general business license. Why? Because remember, a business license makes your business legitimate. So whatever transaction you have with a client becomes legal, and laws protect you and your client.
Also, as you continue to grow your business and gain more clients, sooner or later, one may ask if you have a business license. For some, a business license signifies competency and professionalism. And if this can get you more clients, trust ratings, and referrals, why not get one right? The process of securing a business permit nowadays has become easy because of online submissions anyway. Plus, the process will be easier if you intend to expand soon or branch out to other locations.
4. Selling Platform
Most freelancers conduct business online. This means you do not need to see your client in person to do business. An animator, for example, can basically make all communications and project submissions without needing to sit down with the client. If this is you, then basically, you might not need a business license.
On the other hand, if you have physical property, whether rented or owned and conduct in-person meetings with your client, then you should get a business license. Do not forget to check your local zoning ordinances!
5. Earnings
Sometimes, your earnings will determine whether you need a business license or not. For example, if you have switched to purely doing freelance work, meaning you quit your day job and started earning a lot, your local tax agency might see the trend and require you to register your business. Remember, you are still declaring your income through your income tax returns.
If you are doing freelancing as a side job, let’s say just for one or two clients in your free time, then you will not usually need a business license.
Other Licenses and Permits
Check out your state’s website if you need a retail or sales tax license. These are usually required for businesses with retail activities. Remember to diligently check relevant websites for any other legal paperwork like tax permits. Of course, no one wants to be fined because of failing to submit a single document.
If you wish to operate under a business name, register your business name so you can own and protect it. An added bonus to having a registered business name is it allows you to have a business bank account. Separating your personal and business bank accounts is crucial, especially if you do not have an accountant to keep a close watch on your finances.
Conclusion
Being a freelancer may be liberating and exciting. It does give you freedom from a monotonous daily routine, and you get total control of your time. It sure feels great knowing that you can still earn while on vacation. But you must not overlook your responsibilities and obligations if you are serious about being in the gig economy and want to have a credible name in your industry.
Note: To be on the side we recommend checking with the Small Business Association or talking to a lawyer.
“As a freelancer do I need a business license?” It depends. It depends on your location. Your industry. And business structure. But mainly, it depends on you.
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