Do I need a California business license to do contracting work?
The short answer is yes, but the question is actually two questions in one. California requires a contractor’s license from the Contractors State License Board (CSLB) for any project valued at $500 or more in combined labor and materials. Separately, you need a general business license from the city where your business is based. These are different requirements issued by different agencies, and you need both to operate legally.
The CSLB license is the big one. California has three main classification types. Class A is for general engineering contractors. Class B is for general building contractors. Class C covers specialty trades like electrical (C-10), plumbing (C-36), HVAC (C-20), painting (C-33), and about 40 other specialties. You need to pass a trade exam and a law/business exam, show at least four years of journey-level experience, carry a $25,000 contractor bond, and maintain workers’ comp insurance if you have employees.
The local business license is simpler but easy to overlook. In Long Beach, for example, you register with the city and pay an annual fee based on your business type and gross receipts. If you do work in multiple cities across the South Bay or Greater LA, some of those cities may require you to register there as well. The rules vary by municipality, so check each city where you regularly take on projects.
Operating without a CSLB license on jobs over $500 is a misdemeanor in California. Penalties include fines up to $15,000, and you can’t enforce a contract or file a mechanics lien for unlicensed work. The CSLB actively runs sting operations, so enforcement is real.
All of these licensing costs, including exam fees, bond premiums, insurance, and local business license renewals, are fully deductible business expenses. The problem is that many construction and contracting businesses don’t track these expenses properly throughout the year and end up missing legitimate deductions when tax season arrives.
Beyond licensing, California also requires you to register with the state for income tax, and with the EDD if you have employees. If you’re pulling permits on jobs, some building departments will verify your CSLB license status before issuing them, so keeping your license active and your bond current is not optional.
If you’re getting your contracting business set up or making sure you’re compliant, working with a CPA for construction businesses from the start helps you structure things correctly. That includes choosing the right entity type, understanding your tax obligations, and making sure expenses like licensing and bonding get tracked so they actually show up as deductions on your return.
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More Questions
What forms do I need when I hire a new employee?
At minimum you need a W-4, Form I-9, and to report the new hire to California EDD within 20 days. There are a few other items to handle before that employee starts working.
Read answerWhat is the self-employment tax rate?
The self-employment tax rate is 15.3% on net self-employment income. That covers both Social Security (12.4%) and Medicare (2.9%), which W-2 employees split with their employer but self-employed individuals pay in full.
Read answerHow do I avoid red flags on my tax return?
The best way to avoid red flags is to report accurate numbers backed by real documentation. Most red flags come from sloppy bookkeeping, not intentional fraud. Clean books and honest reporting keep you off the IRS radar.
Read answerWhat is catch-up bookkeeping?
Catch-up bookkeeping is the process of recording, organizing, and reconciling all the financial transactions your business missed over weeks, months, or even years. It brings your books current so you have accurate financials going forward.
Read answerWhat does a CPA do that a bookkeeper doesn't?
A CPA is a licensed professional who can file tax returns, represent you before the IRS, and provide strategic tax and financial advice. A bookkeeper handles the daily recording of transactions that makes all of that possible.
Read answerDo I need a local bookkeeper or can I use someone remote?
Either can work, but industry expertise matters more than geography. A remote bookkeeper who understands trades and construction will serve you better than a local generalist who doesn't know job costing or contractor deductions.
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