Video
How to Start a Contractor Business, Step by Step
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Summary
To start a contractor business, check your state and local license rules, pick a business structure, get a free EIN from the IRS, line up bonds, insurance and workers’ comp, learn the first-hire paperwork, and plan for 15.3% self-employment tax.
Each step has its own guide, with the official sources:
- How to start a contractor business: the full checklist
- Contractor license requirements by state
- LLC vs. sole proprietor for contractors
- How to get an EIN for free from the IRS
- Workers’ comp for contractors
- Hiring your first employee: payroll taxes and registrations
- Self-employment tax for contractors
Rules change and vary by state, county and city. Check the agency linked in each guide before you act.
Shorts from this video
California Contractor License: CSLB Basics
Watch on YouTube California Contractor License: CSLB Basics (opens in a new tab)Read the guide: California Contractor License (CSLB): Steps and Fees
Images from this video
Each illustration links to the guide it comes from.
Full transcript
0:03 Thinking about starting your own contracting business?
0:05 Here's the paperwork, step by step.
0:08 First, check the license rules.
0:10 There's no single national contractor license, so check your state, county and city for your trade.
0:15 Next, pick a business structure.
0:17 A sole proprietorship needs no state filing.
0:20 An LLC is registered with your state and can protect personal assets in most instances, but it adds costs.
0:27 Then get an EIN, your federal tax ID.
0:30 The IRS charges no fee.
0:32 Line up bonds and insurance.
0:34 Workers' comp is set by each state.
0:36 In California, employers need it even with one employee.
0:40 Before your first hire, learn the steps: Form I-9, Form W-4, and new-hire reporting to your state.
0:47 And plan for self-employment tax.
0:49 It covers Social Security and Medicare, at a combined rate of 15.3%.
0:55 Every guide links the agency that sets the rule.
0:58 Start at ContractorsGuidebook.com.
Frequently asked questions
Is there a national contractor license?
No. There's no single national contractor license, so check your state, county and city for your trade. Our state-by-state guide shows where to look.
Does an EIN cost anything?
No. The IRS charges no fee for an employer identification number. Apply on IRS.gov, not through a paid service.
What is the self-employment tax rate?
The IRS self-employment tax rate is 15.3% combined: it covers Social Security and Medicare for people who work for themselves.
Do I need workers' comp with only one employee?
Each state sets its own rules. In California, employers need workers' compensation coverage even with one employee.
Sources
- U.S. Small Business Administration: Launch your business (checked October 30, 2026)
- IRS: Get an employer identification number (checked October 30, 2026)
- IRS: Limited liability company (LLC) (checked October 30, 2026)
- IRS: Sole proprietorships (checked October 30, 2026)
- California CSLB: Workers’ compensation (checked October 30, 2026)
- California DIR, Division of Workers’ Compensation: Employer information (checked October 30, 2026)
- U.S. Small Business Administration: Surety bonds (checked October 30, 2026)
- USCIS: I-9, Employment Eligibility Verification (checked October 30, 2026)
- IRS: About Form W-4 (checked October 30, 2026)
- HHS Administration for Children and Families: New hire reporting (checked October 30, 2026)
- IRS: Self-employment tax (Social Security and Medicare taxes) (checked October 30, 2026)
Related guides
How to Start a Contractor Business: A U.S. Checklist
The paperwork steps to go out on your own as a contractor, in order: license check, business structure, registration, a free EIN, insurance and bonds, tax accounts, and what changes when you hire. Each step links the agency that decides it.
Contractor License Requirements by State: How to Check
There is no national contractor license. How to find out whether your state, county or city licenses your trade, what boards usually ask for (experience, exams, bonds, insurance, fees), and examples from California, Florida and Texas.
LLC vs. Sole Proprietor for Contractors
How a sole proprietorship and an LLC differ for a contracting business: personal liability, how the IRS taxes each by default, state costs such as California’s $800 LLC tax, licensing-board rules for LLCs, and the questions to bring to a CPA or attorney.
How to Get an EIN for Free From the IRS
What an EIN is, when a contracting business needs one, how to apply on IRS.gov in one sitting, the hours and daily limit, why you should form your LLC first, when you need a new EIN, and how to avoid paying a website for something the IRS gives free.
Get the next video when it’s out
Short walkthroughs of one official step at a time, with real sources. New videos on the Contractors Guidebook YouTube channel.
Education only: general information, not tax, legal, insurance or other professional advice for your situation. Rules, fees and deadlines change and vary by state, county and city, so check the official agency we link or ask a licensed professional before you act. We may earn money from ads and, in the future, paid links; our advice isn’t for sale.