How to Start a Home-Based Business
*By {{FH_AUTHOR}}*
Here is how to start a home-based business, in the order that actually works: choose a business structure, register with your state if you want an LLC, get an EIN from the IRS, and clear the licenses your city requires. Most of it is paperwork you can finish in an afternoon.
Two things are genuinely different when the work happens at your house. Your city has to allow it, which usually means a permit. And the address you put on a state filing becomes a public record, which for most people is their home.
This guide covers the six steps, what registering really costs, and the two questions almost nobody answers: what your city requires, and what happens when your house becomes your business address.
Key Takeaways
- The Label Describes Where You Work, Not How You Register. You can operate as a sole proprietor with no filing, or as an LLC.
- State LLC Filing Fees Run From $35 to $500, with a median of $100.
- The Filing Fee Is Not the Running Cost. Some states charge little to start and bill every year after that.
- Most Cities Require a Home Occupation Permit from your local planning or zoning office.
- An EIN Is Free Directly From the IRS, and your home address goes on a public state record unless you use a registered agent or a separate business address.
What Is a Home-Based Business?
A home-based business operates primarily out of the owner's home. The label describes where you work, not how you are registered. You can run a home-based business as a sole proprietor with no filing at all, or as an LLC that you register with your state. Only the second choice separates your business from your personal assets.
That distinction matters more than the label does. Most people who start a home-based business have already been selling for months, which makes them sole proprietors by default. Nothing about working from home changes your tax obligations or your liability.
What working from home does change is who else gets a say. Your city cares where you work even when your state does not.
Can You Run a Business From Your Home?
In almost every US city, yes. The rules come from your city or county, not your state. Most home-based businesses need a home occupation permit from the local planning or zoning office, and typical conditions limit customer traffic, on-site employees, signage, and how much of the home is used for business. An HOA can add its own restrictions on top.
The home occupation permit is worth knowing by name. It exists specifically because you are working from a residence, and asking for it directly turns a confusing call to city hall into a five-minute one. Its conditions are usually about impact on the neighborhood: how many clients may visit, whether employees can work on site, whether signage is allowed, and sometimes what share of your square footage the business may occupy.
If you live in a community with a homeowners association, read the covenants as well. An HOA operates independently of your city, so it can prohibit something your city permits. Before you start a home-based business, treat your planning office and your HOA as two separate checks.
How to Start a Home-Based Business in Six Steps
The order matters when you start a home-based business, because each step depends on the one before it, and working out of sequence is how people end up paying twice.
Step 1: Confirm the Work Can Happen at Your Home
Does the work need customer visits, inventory space, employees on site, or food handling? Those details decide whether your city treats it as a normal home office or as something needing review. Some categories carry their own rules, such as in-home childcare, cleaning services, and photography.
Step 2: Choose Your Business Structure
If you have already started selling, you are a sole proprietor right now. The cheapest way to start a home-based business is to stay one, because it requires no filing and no fee. It also means there is no legal line between you and the business, so a claim against the business can reach your personal assets.
An LLC draws that line. It is a separate legal entity, and for work run out of a house that separation matters more than usual, because the assets sitting behind it include the home itself. A single-member LLC is the normal structure here, and you can form one for yourself with no partners.
Corporations exist as an option, but they carry reporting obligations that rarely fit a business run from a spare bedroom. Most owners here are choosing between staying a sole proprietor and forming an LLC. A CPA can confirm which one fits your numbers.
Step 3: Register the Business With Your State
If you form an LLC, you file a document called the Articles of Organization with your Secretary of State. That filing is what creates the entity, and it is the only step in this list your state charges you for. Sole proprietors skip it entirely.
You will also name a registered agent on that filing, and that single detail decides whether your home address ends up on the public record. Both the cost and the address question are covered below.
One thing you can stop worrying about: you may have read that new LLCs must file a beneficial ownership report with FinCEN. Under a final rule effective August 2026, US companies are exempt.
Step 4: Get Your EIN From the IRS
An EIN is a federal tax ID for your business. You apply directly with the IRS and it is free. Nobody has to pay a third party for one.
You need one if you plan to hire, if your LLC has more than one member, and in most cases before a bank will open a business account. Single-member LLCs with no employees can often use the owner's Social Security number instead, though many owners get an EIN anyway to keep that number off invoices and vendor forms.
Step 5: Get the Licenses and Permits Your City Requires
Forming an LLC and getting licensed are two different obligations, and finishing the first does not cover the second. Most home-based businesses need some combination of three things:
- A General Business License, which most cities require to operate within their jurisdiction and which typically renews every year.
- A Home Occupation Permit from your local planning or zoning office.
- A Sales Tax Permit From Your State, if you sell taxable goods or certain services, which is the usual case for selling online.
Regulated work needs its own state credential on top of those. Childcare, cosmetology, food preparation and healthcare all carry licensing that applies wherever the work happens, and a lapsed license is a common way an otherwise healthy business collects a fine.
Step 6: Separate the Money
Open a business bank account and route everything through it. This is the least interesting step and one of the most important, because an LLC that shares an account with its owner is the standard way liability protection comes undone.
What It Costs to Start a Home-Based Business
What it costs to start a home-based business as an LLC comes down to two numbers, and almost every guide publishes only the first one.
| What You Pay | Amount |
|---|---|
| Lowest state filing fee | $35 in Montana |
| Median across all 51 US jurisdictions | $100 |
| Highest state filing fee | $500 in Massachusetts |
The second number is what the state charges to keep the entity alive, and it does not track the first. California is the clearest example: it files for $70, well under the national median, then charges a mandatory $800 annual franchise tax every year the LLC exists, whether or not the business earns anything. Massachusetts charges $500 to file and another $500 every year after that.
So the state that is cheapest to enter is not always the cheapest to keep. Check both numbers before you decide anything on price, and budget separately for a registered agent and your local license.
Ready to make it official? Start your LLC with FormationHub, step by step.
Using Your Home Address for Your Business
When you form an LLC, the addresses you list go on a filing that becomes a searchable public record. For work run out of a house those addresses default to the house, which makes your home business address a decision rather than an afterthought.
Two addresses are usually involved. The registered agent address has to be a physical street address in the state, staffed during business hours, where legal documents can be delivered. Most states also ask for a principal business address. Name yourself as your own agent and both become your home.
Disadvantages of Using Home Address for Business
- Your Address Becomes Publicly Searchable and permanently tied to your name in state records.
- Acting as Your Own Registered Agent Ties You to the Property during business hours, and legal papers can be served at your front door.
- Business Mail and Solicitations arrive at your home in noticeable volume once the filing is public.
The fix is straightforward. A commercial registered agent service or a separate business address keeps your home off the public filing while satisfying the state's requirement. Deciding this before you file is far easier than amending records afterward.
Set Up a Workspace That Qualifies
Most advice about home workspaces is about lighting and chairs. The part that carries real consequences is narrower: whether the space qualifies for the home office deduction.
The IRS applies an exclusive and regular use standard. The space has to be used regularly for the business and exclusively for the business. That second word does the work. A spare bedroom used only for the business often qualifies. A kitchen table where the family also eats dinner generally does not, however many hours you work there.
Qualification depends on how you use the space, not on what you claim later, so it is worth setting up correctly from day one. A CPA can confirm what your setup qualifies for. One more call worth making: a standard homeowner's or renter's policy generally does not cover business activity, equipment or liability, so ask your carrier what you have.
Disclaimer: FormationHub is not a law firm or an accounting firm, and this article is general information, not legal or tax advice. Filing fees, processing times, and state requirements change. Confirm the current requirements with your state's filing office or the IRS before you file, and talk to a licensed attorney or CPA about your specific situation.
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