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 regulations, or, if you’re part of a homeowners’ association or co-op, its bylaws.
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, Chester County, 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 children don’t sit there for hours at a time playing computer games or visiting Facebook.
Photo by zak_greant.