My aunt does some personal organizing for people for a charge. I told her that it would be wise for her to get a license, but she thinks it is unnecessary since she doesn’t make huge sums of money from it.
Your locale (city, county, state) generally sets the threshold. You might want to start with city or town web site to see if a business license is required and work your way up to your state’s corporate business site.
What do you mean by license? Unless she’s engaging in a regulated industry (e.g. banking, insurance, brokering), she would not need a license.
If you’re asking about forming an entity, that’s a different story. She’s currently operating as a sole proprietor, so she has unlimited personal risk for her business actions. She could set up an entity, such as a limited liability company to limit her potential liability, but that is not required (although often prudent).
If you’re asking for tax purposes, she is required to report the income regardless (local, state and federal).
All of the above assumes she’s operating in the United States.
Edit: Because I am a lawyer, I just want to be clear that this is not legal advice; and neither you or your aunt is my client, and the other usual disclaimers.
This is 100% entirely wrong. Businesses in the U.S. are generally required to obtain a license in their locality and pay taxes to that locality on receipts earned while doing business there. They’re called things like Business Privilege Licenses and you are required to pay Business Privilege and mercantile taxes on receipts earned doing business in your locality.
Of course, it varies by location.
As Duckster said there may be a de minimus exemption. In my city, anyone who carries out business in the city must obtain a license and must file a return whether they owe tax or not.
This is not true as a blanket statement. In my city, for example, she would need a business license for just about any business that is not a regulated industry. Regulated industries are exempt from the business license requirement.
Ok, I’ll retract my blanket statement then. I’m not familiar with locality laws outside my jurisdiction.
I’m in New York and I’ve never heard of a business privilege license. A quick Google turned up nothing. So this question is absolutely location dependent.
I know that my wife had a booth a few times a year at a flea market, and she got a letter from the county saying that she needed a business license unless she fell into one of the exceptions. She wrote back that she did indeed fall into one of the exceptions, namely that her booth was open less than a certain number of days in the year.
Here’s an example from my city (Chicago): http://www.chicityclerk.com/businesslicense.php
Money quote:
In Washington state, she’d be required to get a license if she makes more than $12,000 or if she has any amount of services or products subject to sales tax.
Some cities require an additional city business license. If the aunt does it from home, some cities will require an additional application for a home office.
I recommend calling either city hall or the local chamber of commerce and asking about the licensing requirements.
I’ll just mention that in practice there may be two different thresholds to consider: the legal threshold to require a license, and the practical threshold below which the municipality doesn’t care – few towns are interested in taking enforcement actions against a kid’s lemonade stand, the teenager mowing a couple lawns, or the guy who fixes his friend’s car for a couple cases of beer, even if there’s no minimum exemption for a business license. Some municipalities might care about a $3,000 a year side consulting business and some might not, and if you ask the right person at city hall you might be able to get a feel for what they consider important enough to bother with (or you might not, but it’s worth a try).
That’s…interesting. I know a good number of freelancers here in the city, and I have never heard of this business license requirement for the city. These are people who make 100% of their income through freelancing. I wonder if the city just doesn’t care, or whether it doesn’t apply to people who just offer services, or what.
If by freelancers you mean writers, then the First Amendment comes into play. Cities cannot put many limitations on writing. Writers are allowed to write in their homes and work as businesses without worrying about zoning laws, for example. (Although they have to abide by IRS regulations for decalring their offices as a business expense.) I’d be surprised if it were a requirement existed anywhere for a writer to need a license to write. Instant court case.
Well, both writers and photographers, in the cases I’m talking about.
I’m guessing it’s just lax enforcement. Probably not worth it to try to track down everyone who does a little freelancing here and there, and in the case of writers and photographers, there are a lot of small-time free lancers.
That said, here’s a list of businesses exempt from licensing (neither photography nor writing are exempt): http://www.cityofchicago.org/city/en/depts/bacp/supp_info/business_licenseexemptions.html
Like I said, interesting. I’m not talking “a little writing here and there.” I’m talking 100% of income.
The government can’t require a license to write, but they can require that you register your business - and if you make a living from your writing, you have a business whether you registered it or not. The first amendment would never come into play.
The real issue is enforcement, as TheFifthYear says. How does the city know if you’re a freelance writer? They can’t see your federal tax return to the IRS. They’re certainly not going to send cops door-to-door looking for freelancers who haven’t registered. To some extent, it’s a matter of voluntary compliance with the law.
You’d be amazed at what people report about their neighbors.
http://www.nyc.gov/html/dca/html/business/business.shtml
Here’s a more general resource: http://business.sba.gov/register/licenses-and-permits/
As far as I can tell, what that NYS site mainly does is guide you to get a permit to collect sales tax. (I tested it by pretending to start a jewelry store.) That is not a license as I understand one. (NYC is another world, one I choose not to inhabit.)