Running your business from home has some fantastic tax saving opportunities. But depending on your business, this might not be enough to make it worth your while. Working from home can impact your life more than you might think. If you have a family, it will also impact the lives of your family members.
Here are a few things to consider when thinking of running your business from home.
Type of Work
Many services are easily done from home, especially those that only require a computer and some software for you to be able to do your work. Unless you have a lot of storage space available or you aren’t planning on carrying inventory, a retail business will be more difficult to set up in your home.
Think about the work you do and whether it would fit easily into your current home environment. If you need to renovate your home in order to set up your business, these expenses may be deductible on your business tax return or qualify as capital expenditures.
Space and Set Up
Not only should you consider whether you will need to renovate your home in order to operate your business, but you should also consider whether you will need to see clients in person. Do you want clients coming to your home? Some people aren’t comfortable with this, especially if they are new clients they haven’t worked with before.
Also consider whether you want your business to be easily separated from the rest of your home. This is easier for record keeping purposes, but might not be necessary depending on the type of business you have. For example, someone who only needs their laptop to run their business could do everything from their kitchen table.
A business that requires face-to-face meetings with clients or colleagues will at least need an area where meetings (whether virtual or in person) can take place without interruptions.
Privacy and Protection
While you might need privacy to conduct meetings, what about keeping personal information safe in your home? Will you be able to protect your clients’ privacy as well as your own?
Often, this is achievable by using a remote server for backups, but you’d want to make sure a service like that is available to you. This type of service will also protect your data in the event of a fire or other natural disaster at your home.
You will also want to check into your insurance policy. Some insurance companies won’t insure your home if you’re running a business out of it unless you meet their specific requirements. This can increase the price of your policy.
Tax Advantages of Running Your Business from Home
Now that we’ve mentioned a few things to consider before jumping into business at home, let’s look at the tax advantages.
When you operate a business from your home, if you meet certain criteria, you are able to claim the business use of home deduction on your business tax return. Depending on your home expenses, this can add up to a significant deduction.
The business use of home deduction is based on the percentage of your home you use for business. You can claim a prorated amount of your mortgage interest (or rent), utilities, property taxes, house insurance, and repairs and maintenance.
The downside of claiming the business use of home deduction is if you sell your house, the portion used for business won’t be eligible for the capital gains exemption available for your principal residence. If this is a concern, be sure and discuss it with your tax accountant.
In addition to tax savings, running your business from home offers plenty of other advantages. These include eliminating commute time, not having to have set open hours, and saving money. Many people also report a happier work life and increased productivity when working from home.
Starting a business can require a large capital outlay. If you can set up your business from home, you’ll avoid overhead costs such as rent and utilities for office space. Depending on the type of work you do, you might also save money by not having to buy office furniture or a computer system.
Having a separate place of work for your business also offers advantages. For some people, it’s easier to leave the stresses of the work day at the office if it’s in a different physical location. The drive to and from work can also act as a way to prepare for or unwind from the work day. Whether you decide to work from home will depend on your personality and the type of business you want to operate.
Now you know what to consider when running your business from home. You are well equipped to make an informed decision. If you’d like to discuss your individual situation and its tax implications in more detail, fill out this form to book a complimentary consult.