Starting a business requires applying for a business license in many jurisdictions. It's necessary so that cities and towns can regulate the types of enterprises that are being operated in their areas. It also ensures the safety of surrounding businesses and patrons. When you apply, you may be asked to record the total amount of your annual gross receipts. Make sure to calculate this carefully and document the accurate number.
Business License Requirements
Prior to applying for your business license, you will need to determine your company's name and location. Also, if you will use a business type other than sole proprietorship, file your corporate structure papers before applying for a license so you can use that as your company name. Obtain your federal Employer's Identification Number from the IRS. You may need one whether or not you plan to hire employees. In addition, you need to know when you will begin your business operations. (See Resources)
Gross Receipts Definition
Some business license jurisdictions require you to record your anticipated gross annual sales. Part of your business license fee will be based on the amount that you record. When calculating your gross receipts, include any items sold and paid for and all receivables that you have yet to collect. If you perform a service and do not sell goods, then you will include all payments made and invoiced. In the total, add credits that you have issued to your customers and property that has been given to you in consideration of payment.
Exclusions to Calculations
In some areas, there are exclusions to what you should consider as your gross receipts. Check with your business license office for a list of requirements. For example, you may not be required to include any taxes that you have collected. You will pay these to the governing authority. Cash discounts and refundable deposits may not count toward the total of your gross receipts. If you were in operation in the last year and experienced uncollected invoices that you have used as a tax deduction for losses, you probably won't have to consider them in your calculations, either.
In some areas, you will be charged a business license fee for the first year of gross receipts after you renew your license. This is so that an accurate accounting of your gross receipts may be made for the year before. Make sure to renew on time to avoid late fees. Also, if you plan to run a small part-time enterprise and your gross receipts do not meet the minimum amount established by your area, you will not be charged a tax on your business license.