Federal and State

• The most common federal license you need is an Employer Identification Number. This is required by the IRS if you have any employees other than yourself. Some types of business (usually those subject to direct federal regulation) need federal permits or licenses, including firearms dealers and investment advisers.
  
  Each state sets its own rules, but in general if you are selling a product to the public or to other businesses for eventual resale to the public, you need a state tax identification number (often called a state business license). Some types of businesses are required to have specific licenses. For example, attorneys, brokers, and most businesses providing food or health care services all must be licensed in most states. For state-by-state contact information to determine your state rules, sue the Business.gov link below.
  
  

Local Permits and Licenses

• The majority of small businesses are individuals who may not need any license, but it depends on the regulations in your city or county. If you need any sort of federal or state permit or license, you will need a local license as well. Some businesses require permits. Common examples are contractors, barbers and astrologers. If you are planning to run the business out of your home, check with your city and county government about zoning regulations. Some activities such as food service or retail marketing may not be permitted in certain areas.
  
  

Licensing Advantages

• For both marketing and tax reasons, a business license may be needed even when it's not legally required. For instance, for a small fee you may register a business name at your county clerk's office. When you do this no one else in your state can use the name. Such a "doing business as" name (DBA, also called a Fictitious Business Name or FBN) allows you to advertise, accept checks and pay bills using the business name.
  Even a business that's primarily a hobby may be worth licensing since this provides some substantial tax advantages. Perhaps most important is that you must have a business license to write off any losses on your taxes. You do have to show the IRS the business is intended to make a profit. One test is if the business made a profit three of the last five years. However, solid documentation, such as evidence of advertising, a business bank account and a business license can help convince the IRS the business is "for profit" even if you lost money. Having a business license may also give you the ability to deduct additional business expenses and to use certain types of tax shelters for retirement saving.