Okay guys, there are a million threads asking about these topics so let's address them individually.
Contracts: I know a lot of you are ready and raring to go start your business/freelancing and want to get some good solid contracts to help protect yourself. Let me say that unless you are familiar with your states contract law you probably will end up screwing yourself. More than likely you will end up screwing yourself if you use it enough times.
The fact of the matter is, you don't know contract law. You might accidentally "promise" your client something by simply not stating specifically that you will not provide it, and you will be legally accountable to complete that service.
I understand that legal representation of that sort can cost into the hundreds of dollars per hour, but believe me when I say it will save you that much in the long run. Sit down with a lawyer and go over exactly what you need to put in the contract for what you are offering.
Licenses: You do not need a business license to do freelance work in most states. You do need a license as soon as you want to hire employees or act as a business entity. Discuss this with a business lawyer to be sure what your state requires. Usually it is based on income and employee base size.
Tax Matters: Go see a tax professional. Taxes are different from county to county and the best way to stay in the clear is to get yourself a trustworthy tax representative to help you handle your specific situation.
Remember, everyone here is trying to help as best they can. And we all love free advice. But it is important that you realize the gravity of business law, tax law, contract law, and their effects on you.