In order to answer your question we need a bit more information.
What state is your business going to located in?
What is the business (yes it does make a difference in how you organize)?
Which tax structure should I file under?
As a general rule, professional service businesses file as LLCs or LLPs
Wholesale trade businesses don't actually need a business license
Retail trade businesses file as either S-corps or C-corps
As far as federal tax implications go, as an S-corp or a C-corp you have to deal with double taxation. You get taxed once on the profits of the business and a second time on any distributions or payments the business makes to you.
The trade off for double taxation is a liability benefit. Owners of S and C corps cannot usually be sued for any wrongdoings done by the business.
There is a way around double taxation that is slightly risky as far as tax implications go. Essentially instead of taking payments or distributions from the company to yourself, the company loans you money that you must pay back to the company at some future time. Loans are not taxed for either the borrower, or the lender (the lender does have to pay taxes on any interest collected from the loan though. This is usually a very small taxable amount).
Sole proprietorships, LLCs and LLPs only have single taxation, but it is much easier to sue the owners of the company in case something goes wrong.
Do I have to get a business license for every state I do work or perform sales in?
No, only the state where your business is based.
My qualifications:
I have started 3 businesses, helped probably 10-15 other people start business. I work with lawyers and CPAs every day who deal with business start-up issues like this. I have an MBA from Babson College which is considered by wall street journal, Fortune Magazine, and U.S. News to be the best business entrepreneurship school in the world.
