An essential component of any independent consultant’s business plan is taking the necessary steps to ensure that you will be operating legally, with all of the required licenses and permits that you need. More often than not, an unlicensed independent consultant isn’t willfully avoidant; they just weren’t aware of what was required. Don’t be unprepared when tax season comes around. Below is an outline of some of the requirements that apply to many independent consultants, and information on how to obtain the appropriate licenses.
Some independent consultants simply use their own names to represent their consultancy. However, if you are acting as a sole proprietor and plan on doing business under any name other than your full given name, you must register your business’ name. This name may be referred to as a fictitious business name, assumed name, or DBA (“doing business as”), and requirements will vary between states and municipalities. Specific information about each state’s requirements is available here.
If your state allows single member limited liability companies and you choose to form an LLC instead of operating as a sole proprietor, your company and name must generally be registered with the Secretary of State. Should you decide to do business under another name in addition to your LLC’s registered name, you must also register a DBA just as a sole proprietor would.
Not all independent consultants will be required to obtain a federal tax identification number, or EIN (employer identification number); sole proprietors and single member LLCs that choose not to operate as a corporation are generally not required to obtain one, unless certain requirements are met. You can find out if you need an EIN here. Some states also require that all LLCs, regardless of designation, obtain an EIN.
Independent consultants who operate as a corporation or partnership must register for an EIN, and sole proprietors or LLCs who are not required to have one may choose to do so for banking or privacy purposes. Applicants can apply online, or via mail or fax with Form SS-4, or by calling the IRS Business & Specialty Tax Line at (800) 829-4933.
- State and Local Tax Permits
In addition to any federal taxes, independent consultants will also be required to pay state and local taxes. You may be required to register with your state’s tax agency to obtain a state tax permit, and most states also levy a corporate or business income tax. To find out what state and local taxes apply to you, learn about your state’s specific requirements.
- Business Permits and Licenses
Independent consultants, like any other business, must obtain operating permits and licenses. Depending on your industry and operating location, you may need to be licensed on the federal level in addition to state and/or local level. Federal licenses are required for businesses in specific fields, including agriculture, alcoholic beverages, aviation and broadcasting. A full list of is available here.
To learn about the state and local permits that may apply to your consultancy, visit the U.S. Small Business Administration’s “Permit Me” tool.
Some trades and vocations – such as real estate or cosmetology – may also require additional state licensing. More information can be obtained through trade associations or though states’ websites.