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Home Based Occupations ... |
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| Syllabus | Class Sessions | Links | Grading | Assignments | ||
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Home Based Occupations ... |
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| Syllabus | Class Sessions | Links | Grading | Assignments | ||
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Home Based Business or Occupations |
| Operating a Home Based Business |
Operating from the home may or may not be a suitable arrangement for you. It is great for limited scale businesses or for starting slowly before out growing the home or for testing the waters with little expense. Can you run a business from a home and still keep it comfortable for the hoe's residents? Some of the challenges are:
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Areas of planning unique to starting and operating a business from your home include: zoning, legal, licensing, record keeping& taxes, and insurance. You should contact your local planning or zoning office, your accountant, and your lawyer to clarify these variables and understand your local situation. Zoning and Legal Regulations: Cities and counties have zoning ordinances restricting business use of the home in an effort to protect the quality and character of the neighborhood. Obtain a copy of the ordinances and restrictions from your local commission. These ordinances may be appealed, changed or challenged through the political process by working with the zoning commission and city council. Typical restrictions may be: 1. No on-site sales - The concern is foot and vehicle traffic. Merchandising businesses often will use mail or direct delivery to get their goods to their customers. Service and professional business people will go to their client's locations. 2. Home use square footage allowance - Most ordinances specify a total of your residences square footage that can be used for a home operated business. Carefully plan space utilization. 3. No inventory storage - The concern is fire, safety and safeguarding against on-site sales. Inventory may be stored in self-store rental space. You need to consider liability, security and insurance needs. 4. Delivery restrictions - Deliveries may be prohibited to residential areas. The concern is traffic. The owner can pick up supplies and fit storage into the square footage allowance. 5. Noise, hazardous waste and odor pollution - You should check with state environmental agencies and the County Health Department if you have any of these issues. You may be denied a business license for home use. 6. Sinage - No signs or other advertising may be place at your home, in the neighborhood, nor on vehicles. Detachable magnetic signs for the vehicle are usually allowed. 7. Fire Permit - If you work with flammable material you will need inspection and a fire department permit. 8. Employees - Only the owner and family can work in the home. The concern is to limit business growth and neighborhood impact. You may be able to use contract labor but should conform to independent contractor laws and tax status requirements. Setting Up a Home Based Business Licensing: Licensing is the same for home operated businesses as any other business if you meet the restrictions and considerations discussed above. First, you need a Business License. If you operate under a fictitious business name you must file with the county or city clerk's office. If you sell merchandise, you will need a seller's permit. Self-Employment, Social Security and Home Based Businesses You can be self-employed and work at home and benefit from the expense deductions below. You will pay self-employment taxes of 15.3% and can receive credit towards social security if you earn at least $3,880 a year. (four credits of social security = one year) $970 gets you 1 credit. Be careful about the distinction between earned income and investment income. For instance, if you run a property management business for property you own, you will need to have at least one other property owned by someone else to qualify for the social security credit and the tax deductions of a business and home expenses. If you only manage your own property, that is considered investment income by the IRS. You can deduct expenses on the property, but get no social security credit, pay no self-employment taxes and can't deduct expenses from a home office. Phone and Internet Connection ISPs may and Phone companies have traditionally charged higher rates for business service in the past. In some parts of the country there are "telephone police" at the telephone companies who make calls to residential numbers to see if anyone answers "Hello, Ted's Termite Service." However, most telephone providers allow home based businesses to use a residential account. If you need for features (multiline, music on hold, etc.) you may opt for a business phone account. The same is true of large ISPs like Comcast and local ISPs like Cruzio. They may limit your bandwidth and charge you a premium of $5/month if you have too much demand on the bandwidth (hits, traffic, downloads). They may monitor want you to switch to a business service for high bandwidth use. ECommerce certainly needs a special account if you want secure server and credit card payment. If you need more services like multiple email accounts, secure server, database integration, etc. you'll need a special (more expensive) account. Still, the cost isn't much more, so relax. Insurance Insurance considerations for liability, property, fire, health, worker's compensation, automobile, business interruption risks and disability should be discussed with your agent. Are their special risks to your home from the business like explosion, theft personal liability when you operate from the home? A small sewing repair shop would be fine, a auto repair shop might need more. Car insurance requires several considerations. You may use your personal car for business and your personal insurance may be adequate. First, the amount of coverage on the car (property) may be adequate but is the amount of liability coverage enough. Secondly, rates are determined by the amount of driving you do a year, miles on the road. If you use i t a lot, you may want to increase coverage or get separate cars for personal driving and business driving. Also, if you register a car in a corporate name, the insurer may not cover you personally for liability or the car for repairs in non-business use collisions (Worst case scenario: Driving to Lake Tahoe, total the car and the other driver sues you for $1 million. The insurer says, "Sorry we are not covering the damage to your car. We would protect the company if it were sued but not you as an individual." Sole Proprietors and partners usually have individual personal policies. Co-ownership is possible but is still a personal policy. You can get a commercial policy if the cars are used only for the business and not for personal driving but that is usually more expensive unless you have a fleet of cars and trucks. Recordkeepping and Taxes: You should open a business bank account. You should keep records related to your home in accordance with I.R.S. definitions in order to deduct and allocate home expenses to your business. Consult with your accountant. The "home" includes house, apartment, condominium, cooperative, mobile home, boat or similar property. Unattached structures such as a greenhouse, garage, studio, barn, etc., are included. The portion of home must be used "regularly and exclusively" as the principle place of business or trade, or place to meet or deal with customers, or used in connection with your trade or business if its a free standing structure.
Deductions may include maintenance and repairs, childcare, real estate tax, mortgage interest, rent, casualty losses, utilities, insurance, security systems, telephone, and depreciation. Can you deduct Business Use of the Home Expenses?
The IRS give the following guidelines: |
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What if you have Outgrown yYour Home Based Locaiton? It is common to outgrow your home location but be reluctant to take the next step. Common barriers and fears for people of taking the next step are:
Many of these fears are psychological and some are clearly rational and realistic. If you suffer these sorts of hesitations, a good solutions are to:
How do I make the move?
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