How to Start a Contractor Business: A U.S. Checklist

Going out on your own is mostly a skills decision, but the paperwork decides whether you can legally bid, get paid and protect yourself. This guide is the hub for everything on Contractors Guidebook. It puts the steps in a sensible order, explains each one in plain English, and links the agency that actually sets the rule. Nothing here is a paid link, and nothing here is tax, legal or insurance advice for your situation.

Do you need a contractor license first?

Often, yes, but it depends on your state, your trade and the size of the job. There is no single national contractor license. The U.S. Small Business Administration (SBA) notes that license and permit requirements vary by business structure as well as by state, county and municipality, so you may need more than one.

Some states license general building contractors; others license only certain trades (electrical, plumbing, HVAC); some leave most licensing to counties and cities. A few examples, each labeled by state:

• California: the Contractors State License Board (CSLB) says a license is needed for construction projects priced at $1,000 or more in labor and materials combined. See our California CSLB guide.
• Florida: the Construction Industry Licensing Board issues “certified” licenses that work statewide and “registered” licenses that work only in the local areas where you met the competency requirements.
• Texas: the Texas Department of Licensing and Regulation licenses electricians and air conditioning and refrigeration contractors, and the Texas State Board of Plumbing Examiners licenses plumbers.

Our guide to contractor license requirements by state shows how to find the right board for your trade and what they usually ask for: experience, exams, a bond, insurance and fees.

Should you be a sole proprietor or an LLC?

A sole proprietorship is the default if you simply start working for yourself; the SBA notes that it doesn’t create a separate business entity, and that you can be held personally liable for the business’s debts and obligations. A limited liability company (LLC) is a state-registered entity that, in the SBA’s words, can protect your personal assets “in most instances” from the business’s debts and lawsuits.

Taxes work differently from what many people expect. The IRS treats a single-member LLC as a “disregarded entity” by default, so its profit is reported on your personal return much like a sole proprietor’s. States can add their own costs: for example, California: the Franchise Tax Board says LLCs pay an $800 annual tax. Our LLC vs. sole proprietor guide walks through the trade-offs; a CPA or attorney can tell you which fits your plans.

How do you register the business and its name?

LLCs and corporations are formed by filing with your state, usually the secretary of state. A sole proprietor who uses a name other than their own legal name generally registers a fictitious business name (also called a DBA or “doing business as”) with the state or county, depending on where you live. The SBA’s registration steps link to each state’s office.

Check the name before you print anything: search your state’s business entity records, your state licensing board, and the U.S. trademark database. If you plan to build a website, check the domain at the same time; our sister site True Trade Guide covers domain names and business email setup.

Do you need an EIN, and what does it cost?

An Employer Identification Number (EIN) is the business’s federal tax ID. The IRS says you generally need one to hire employees or operate a partnership or corporation, and many banks ask for one to open a business account. Getting it from the IRS costs nothing: You never have to pay a fee for an EIN. The online application is issued immediately when approved. See our step-by-step EIN guide.

What bonds and insurance might you need?

Three different things often get lumped together:

• A license bond (contractor bond) is required by some state boards as a condition of the license. California: CSLB requires a $25,000 contractor bond, and an LLC licensee needs an additional $100,000 employee/worker bond plus liability insurance.
• Workers’ compensation is set by each state, not by the federal government. California: employers must carry it even with only one employee. See our workers’ comp guide.
• Business insurance such as general liability, commercial auto and tools coverage is sometimes required by a state, a customer or a general contractor, and sometimes optional. Our insurance basics guide explains the common types as education only; a licensed agent or broker can quote and explain coverage.

Public and some private contracts also ask for bid, performance and payment bonds. The SBA runs a surety bond program for small businesses that might not qualify for bonds through other sureties.

Which tax accounts do you open on day one?

As a self-employed contractor, you generally pay income tax plus self-employment tax (Social Security and Medicare) on your net profit, and the IRS expects you to pay during the year through estimated tax payments if you expect to owe $1,000 or more. Our self-employment tax guide explains the 15.3% rate and how the deduction for half of it works.

Depending on your state and trade, you may also need a state income tax registration, a sales and use tax permit, or a city business tax certificate. California: the California Department of Tax and Fee Administration (CDTFA) publishes a construction industry guide on when contractors owe sales or use tax on materials and fixtures. Keep business records from the first job; the IRS recordkeeping page explains what to keep.

What changes when you hire your first worker?

Hiring adds a new set of duties: Form I-9 for every new employee, Form W-4, new-hire reporting to your state, payroll tax deposits and returns, state unemployment insurance registration and, in most states, workers’ comp. Our first-employee guide lists them in order.

Calling a helper an “independent contractor” doesn’t make it so. The IRS, the U.S. Department of Labor and states each have their own tests, and California uses the stricter ABC test for many state-law purposes. See employee vs. independent contractor before you pay anyone on a 1099.

Where do customers and marketing fit in?

This site stays on the licensing, legal-structure, tax and payroll side. For getting found and winning first jobs, our sister sites go deeper: True Trade Guide covers trade business website basics and Google Business Profile, and AI Talk for Biz covers answering leads fast.

Where can you get free help?

The SBA points owners to free or low-cost help through Small Business Development Centers, Women’s Business Centers and other resource partners. Many state licensing boards hold free applicant workshops; California: CSLB offers free online workshops on getting a license. For your specific tax and legal choices, a CPA, enrolled agent or attorney is the right call.