How to Start a Home-Based Business: Licenses, Address and Taxes

Your city or county decides whether you can run a business from home, and on what terms. Most places allow a home-based business, but the conditions differ a lot from one town to the next. A lease or a homeowners association can add rules of its own. And if you list the business online, your home address can end up public.

To start a home-based business legally, you check your city or county zoning rules. Then you get the home occupation permit and business license they require. After that, you decide a few other things:

• a structure (a sole proprietorship by default, or an LLC for liability protection)
• which address the public will see
• your taxes: self-employment tax, estimated payments and, if your space qualifies, the home office deduction

Most of these rules are local, so the details depend on where you live. We'll go through them in the order you'll meet them in your first year.

The first check: zoning for a home-based business

Before you hang anything on the door, you need to know whether your home can legally host a business. In most places it can, but your city or county sets conditions. Zoning is usually controlled locally, so ask your city planning department. The SBA says you might have fewer zoning restrictions if you work from home, "but zoning ordinances can still apply even to home-based businesses."

Many cities use a home occupation permit or agreement. It allows a business in a residential home as long as the house keeps working as a home. Two cities show how different the rules can be.

Glendale's permit has several more conditions. All customer contact has to happen by mail or electronically. The permit is valid only for your current address, so a move means a new permit. The business must also be secondary to living in the house, which means you have to actually live there.

Even a sign on the mailbox isn't allowed. The city lists these as examples of businesses that fit:

1. medical transcribing
2. accounting
3. telephone sales
4. computer programming
5. contractor's offices
6. consulting

Tacoma's agreement is required whether you work part-time or full-time. And if you change the type of services or goods you offer, you need a new application and another fee.

Other cities limit different things. According to the U.S. Chamber of Commerce, zoning can cap the number of employees on site, signage and the share of the home's square footage used for business. If your zoning doesn't allow your type of business, Nolo says you may be able to get a variance. That's a formal exception.

The lease, the condo board and the HOA

Say the city is fine with your plans. A lease or a homeowners association (HOA) still adds a second set of rules on top of zoning. Glendale tells people in apartments to check their rental agreement or lease. Condo owners should check the CC&Rs (the community's rules) and association rules.

The U.S. Chamber notes that HOA rules exist apart from local ordinances, and breaking them can bring fines. So a business can be fully approved by the city and still break the lease or the HOA rules. Check both before you start.

Licenses and permits for a home-based business

Zoning approval is only one of the permits you may need. There's no single national home business license. The SBA says the licenses and permits you need "will depend on your business activities and business location". They can come from the state, the county or the city, and local governments set their own rules for registration and licensing.

For a typical home business, the list to check looks like this:

• zoning approval or a home occupation permit from the city or county
• a general business license from the city or county
• a professional or occupational license from the state, if your field is regulated
• sales tax registration or a seller's permit, if you sell taxable goods
• health permits for food and personal care products (Nolo lists these)
• possibly a fire permit, if customers come to your home or you store flammable inventory (Nolo lists this too)
• a DBA (trade name) registration, if you trade under a name other than your own or your company's legal name

The SBA says most states require you to register a DBA if you use one. A DBA gives no legal protection by itself.

The SBA also notes that some licenses and permits expire after a set period. Renewing is usually easier than applying again, so keep a list of renewal dates. The full topic is covered in How to Get a Business License.

The first sale: you already have a business

Permits are about where you work. The legal form of the business is a separate choice, and you may have made it without noticing. If you start selling without registering anything, you already have a business. The SBA says you're automatically a sole proprietorship "if you do business activities but don't register as any other kind of business."

It costs nothing to set up. But a sole proprietorship isn't a separate entity, and you can be held personally liable for the business's debts. The SBA describes it as a good choice for low-risk businesses and for testing an idea.

An LLC is a separate company, and the SBA says it protects your personal assets "in most instances". For income tax, the IRS generally treats a single-member LLC as part of the owner. The owner reports its income on their own return, for example on Schedule C. LLC members are still considered self-employed and pay self-employment tax.

A fuller comparison is in LLC vs Sole Proprietorship.

If you choose the LLC, it needs a registered agent in its state before it files. The SBA says the agent "must be located in the state where you register." Many owners use a registered agent service, the SBA notes.

In our work with clients, the registered agent receives the state's mail so it doesn't get lost. And an owner who lives in the state can act as their own agent. For a home business, this choice also affects which address shows on the public filing.

The filing form asks for an address: home or elsewhere

That brings you to the question where a home business differs most from one with an office. The SBA lists what goes into LLC articles of organization: the company name, the address, member names and the registered agent.

These are state filings. Owners regularly ask about the privacy side in forums. One Reddit thread, for example, is titled "Has anyone regretted using their home address for LLC?"

A virtual address is usually a commercial mail receiving agency (CMRA). USPS describes a CMRA as a private business that accepts mail from the Postal Service for its customers. It then delivers the mail to a private mailbox.

To open one, you fill out PS Form 1583 and show two forms of ID, one with a photo. Registered Mail still has to be picked up at the local Post Office. When you close the mailbox, the CMRA forwards your mail for 6 months.

A mailbox like this keeps your home address off letterheads and invoices. But the business is still located where the work happens, and Google treats the two very differently. Google doesn't accept a remote mailbox as a business address. The comparison in Virtual Address vs PO Box vs Physical Address: Which Can Your Business Use goes into the details.

Getting on Google without putting your house on the map

Once the first customers are happy, you'll want new ones to find you on Google. Google decides eligibility by how you meet customers. A business can have a profile if it "has a physical location that customers can visit, or travels to customers where they are". It must also make in-person contact with customers during its stated hours. And Google says: "The address on your Business Profile is public."

These rules split home businesses into three groups:

• Customers come to your home: the address can be shown (a tutor, for example, where the city allows visits).
• You go to customers, as cleaners and plumbers do: you're a service-area business and hide the address.
• You work only online: Google lists online-only businesses as ineligible.

For the second group, Google says you "should hide your business address from customers". The profile then shows only your service area. That can include up to 20 areas within about 2 hours of driving from your base. Each one can be a city, a postal code or another kind of area.

So on Google, the address decision follows from whether customers ever meet you in person, and where. For new home businesses that qualify, we set up and verify the Google profile as part of a US launch. Whether the address stays hidden is settled first. More on profiles is in What Is a Google Business Profile and Why a New Business Needs One.

The first tax season: taxes on a home-based business

By spring, your home shows up in your taxes too. Working from home doesn't change the basic tax rules for a self-employed person. It does add one deduction with strict conditions.

Self-employment tax is 15.3%. That's 12.4% for Social Security and 2.9% for Medicare. You file Schedule SE when your net self-employment earnings are $400 or more.

The Social Security part applies to net earnings up to $184,500 in 2026. In 2025 the limit was $176,100. The Medicare part has no limit.

Nobody withholds tax from your income. So you generally have to pay estimated tax during the year with Form 1040-ES if you expect to owe $1,000 or more when you file. That amount includes self-employment tax. The calculation is explained in Self-Employment Tax: How It Works and How to Calculate It.

The spare room and the home office deduction

Then you hear about the home office deduction and wonder whether your spare room counts. The IRS sets two basic requirements. A specific part of the home has to be used exclusively and regularly for business. And the home generally has to be your principal place of business.

You can also meet the second test another way. That's if you do administrative or management work at home and have no other location for it.

The IRS gives an example of exclusive use in Publication 334. An attorney who works in a den that the family also uses for recreation can't take the deduction. Occasional or incidental use doesn't meet the regular-use test either.

There are two exceptions to exclusive use. One is storing inventory or product samples, in a retail or wholesale business with no other fixed location. The other is running a daycare.

The deduction is open to both homeowners and renters. But "employees are not eligible to claim the home office deduction." The IRS counts these as a home:

1. a house
2. an apartment
3. a condominium
4. a mobile home
5. a boat
6. separate structures such as an unattached garage, studio, barn or greenhouse

If the room qualifies, you pick one of two methods.

Under the regular method, deductible costs can include these:

1. mortgage interest
2. insurance
3. utilities
4. repairs
5. maintenance
6. depreciation
7. rent

Under the simplified method, the deduction can't be more than the gross income from business use of the home minus business expenses. Any excess doesn't carry over to the next year. You can choose either method each year, but you can't change your choice for a year once it's made.

We worked out an example ourselves from the IRS figures. Say you use a 200-square-foot spare room only for business. That gives 200 x $5 = $1,000 under the simplified method. A 400-square-foot room still counts as 300 square feet, so the simplified deduction stops at 300 x $5 = $1,500.

The insurance policy you assumed covered everything

Insurance is easy to overlook when the business sits inside your own home. Nolo states it directly: "Your homeowner's insurance will not protect your business. Running a business from your home may even nullify your policy." Nolo advises telling your homeowner's insurer about the business.

The SBA describes home-based business insurance that's added to a homeowner's policy as a rider. It says this "can offer protection for a small amount of business equipment and liability coverage for third-party injuries."

Settle the coverage question with your insurer before you open. It matters most if customers visit, you keep inventory or your equipment is valuable.

Starting with little money

If your budget is tight, the lowest-cost way to start is usually a service you already know how to provide. You run it as a sole proprietorship from space you already have.

You still need the local permit or license, and its cost depends on the city. Tacoma's Home Occupation Agreement, for example, is a one-time $75 fee.

Forming and keeping up an LLC costs money. That's one reason the SBA describes the sole proprietorship as suitable for testing an idea. The home office deduction can lower your tax later, but only if your space meets the exclusive and regular use tests.

Where home businesses slip in the first year

Looking back over the year, most mistakes follow directly from the rules above:

• Starting without checking zoning, assuming a home business is too small to matter.
• Getting city approval and forgetting the lease or HOA rules, which apply separately.
• Putting your home address on every filing before deciding which address the public should see.
• Using a P.O. box or a remote mailbox as your Google address. Google lists both as ineligible.
• Showing your home address on Google when customers never come there. Google says service-area businesses should hide it.
• Claiming the home office deduction for a space the family also uses. That fails the exclusive use test.
• Skipping estimated tax payments in a year when you'll owe $1,000 or more.
• Assuming the homeowner's policy covers the business.
• Following outdated advice on BOI reports. FinCEN now says U.S. companies "are no longer required to file BOI reports". That's under a final rule that took effect on August 14, 2026. Foreign companies registered to do business in the US on or after March 26, 2025 still must file. They have 30 calendar days after notice of effective registration.

What to do this month

Call your city planning department and ask about its home occupation rules. Read your lease or HOA rules as well, since they apply separately. Decide which address the public will see before it goes on any filing or profile.

Then tell your insurer about the business and start setting money aside for tax from the first payment. If a permit, a filing or a Google profile gets stuck, that's the point to ask for help. Self-Employment Tax: How It Works and How to Calculate It covers the tax side in more detail.