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Small Talk: Home-based businesses can have pitfalls
For many of the people laid off during the recession, the next career move is a home-based business. It's an ideal solution for many, but these new entrepreneurs need to be aware of some caveats in running a company from home.
One is taxes. It's much easier to claim a deduction for a home-based business than it was years ago, when it almost guaranteed a visit from the IRS. But it's still possible to make a mistake, claim too big a deduction, and grab the government's attention. Another pitfall to look out for is insurance. Chances are you'll need to buy additional insurance if you're operating out of your house or apartment.
And, you need to be sure running a business in your home doesn't violate any local laws or
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You should take taxes into consideration as you decide where in your home you're going to operate a business. Mark Toolan, a certified public accountant in Exton, Pa., noted that the space you choose "must be exclusively used for business."
That means you can't claim your entire family room if the kids watch TV and play there too. You might be able to claim the part of the room with your desk and PC, but keep in mind you might need to prove to the IRS that your kids don't sit there for hours at a time playing computer games or visiting Facebook.
Claiming part of your home for business use means you can deduct the part of the mortgage
or rent, insurance, maintenance costs and repairs that can be attributed to that space. For example, if your business takes up 10 percent of your home and you spend $10,000 on home expenses, you can deduct $1,000. If you have a cleaning service and spend $2,500 a year to have your home cleaned, you can deduct $250.
The key word to keep in mind when claiming a home office deduction is "reasonable," a word that actually applies to all the business expenses you claim on your tax return. The IRS will have a sense of how much you should be deducting. If you have a consulting business and you get your roof repaired, the government will look askance at your trying to deduct 50 percent of the bill.
You don't have to conduct all of your business activities from your home to qualify for the deduction. If you spend your work time visiting customers but do your administrative work such as billing and keeping your books at home, you can claim the deduction. It's a good idea to consult with a tax professional before you set up the home business, or, at the least, before you start compiling your tax return.
Then there's the matter of insurance. Don't assume your standard homeowners policy will also cover your business.
Check your policy, but also call your broker or the customer service number for your provider to be sure what is and isn't covered.
Someone who's a freelance writer at home may have some coverage under a homeowners policy. But the more complex your business, the more likely you'll need separate insurance. If a business visitor trips over a toy on the sidewalk or is nipped by your poodle, homeowners insurance might not cover the mishap. And if you have employees, it's almost certain you'll need additional liability coverage.
It's not just slips and falls you need to worry about. If you have a lot of business-related equipment in your home, it might not be covered in the event of a fire, natural disaster or theft. You also need to make the same determination for vehicles that are used for both personal and business purposes.
It may be possible to put a rider on your homeowners policy, rather than buying completely separate coverage. Check with your broker.
Before you start a business at home, you also need to be sure that you don't run afoul of local ordinances or zoning regulations, or any limits imposed by a homeowners' association.
Chances are it's fine to run something like a consulting or freelance writing business, said Barbara Weltman, a tax attorney in Millwood, N.Y., and publisher of a newsletter, "Big Ideas for Small Business."
But, "if you think you're going to do something like detailing cars, you can't necessarily keep them on your front lawn," she said. "The best thing to do is check."
Weltman noted that home-based businesses also need to comply with licensing laws, including those that are industry specific. So, for example, if you're thinking of a business that involves food preparation, or you want to run a daycare center, you need to be sure you're fully licensed before you start the operation.
Joyce Rosenberg
10 Things You Must Do To Start Your Work At Home Business
You already know what you want to do, but not sure what steps to take in order to get your work at home business started? You’ve come to the right place! Using the check list below, in the order they’re given, check off each item as it’s completed. Once the check list is complete you should be ready to open your doors.
1. Check with your local Chamber of Commerce, County Clerk or Building and Zoning to see if there are any special licenses or permits your need to operate your business legally.
2. Decide if you’re business is a sole proprietorship, partnership, LLC or corporation. You can research this information online or check with your accountant or attorney.
3. Name your business. Your business name is probably one of the most important things you need to think about. It needs to be relevant to your business and catchy and memorable.
4. Set up a business budget. You need to know how much it’s going to cost to start your business, keep it running and make a profit.
5. Write your business plan. Every business needs one and you can find forms for this online to simplify the process.
6. Advertising and Marketing -You need to incorporate into your business budget money for advertising and marketing, whether it’s online or not. No matter what type of business you own, you need to advertise it.
One of the least expensive ways, and the most profitable marketing solutions, are websites, blogs and social networking. If you do nothing else to advertise your business, you must market it online. Get a website designer or virtual assistant to help you with this if you don’t know how or don’t have time.
People all over the world use the Internet and search engines to find information when they need it and if you don’t use this highly valuable medium to market your business, you are missing out on literally millions of potential customers.
7. Hiring personnel - If you need to hire others to help you get the job done professionally and efficiently, now is the time to start interviewing. Don’t wait until you have your first customer but can’t complete the job or do it well because you don’t have the man power.
8. Office Space - Just about every work at home business requires some type of office space, whether its a table where you’ll do your bookkeeping and paperwork or it’s a full fledge room. Make sure you have a good spot laid out in your home where you can work peaceably and uninterrupted.
9. Office Equipment - Chances are you’ll need, at the very least, a calculator or adding machine, a file cabinet and some files and some type of receipts in order to keep proper books for yourself, the IRS and customers. Most people find using a computer or laptop the most convenient and efficient. You may also need a fax machine, a scanner and a printer depending on the type of business you run. You’ll also need a phone so potential customers can readily contact you for business.
10. Business cards/flyers/brochures - Whether your business is on the internet or out in the community, you want to let your community know about it. They will most likely be your first customers. Get some printed materials to post in laundry mats, grocery stores, the library or town hall, banks and other facilities that allow postings of this type. Be sure you always have business cards on hand so when people ask you what’s new, you can tell them all about your business and hand them a business card.
Chris simpson
