As we've described before, self employment has it's good, bad, and ugly sides. Similarly, working from home also has its pros and cons. Here's the skinny on using your residential dwelling for formal business activities.
Advantages of Working at Home
- No commute
- You save money
- Tax benefits
- Family benefits
- Launching pad for your business
Imagine rolling out of bed on a cold winter day, and with your hair still disheveled, sliding on your slippers. You get a cup of steaming hot chocolate loaded with marshmallows and stroll into your office, which is located next to your bedroom. Sounds enticing--doesn't it? Well, for many people this is work. And this is one of its advantages.
By working at home you save on commuting expenses and more. Since you already pay the mortgage or rent, you'll have no additional charges for office space. You may even be able to deduct the home expenses associated with the section of your house used as an office. Additionally, you get to spend more time at home with family. And last, but not least, working at home can be a good way to measure the viability of your new business.
Disadvantages of Working at Home- Home distractions
- Work distractions
- Motivational problems
- Lack of interaction with others
If you work at home, you can be easily distracted. If people know you're home they will call you. And don't think that your two-year-old will be able to read the "do not disturb" sign on your door, let alone know what those words mean. If that's not enough, think of how seductive your leather sofa will look in the morning, especially when your favorite talk show or soap is airing. Recall those days when you couldn't motivate yourself to jump in the car and drive to work. Imagine how much harder it will be if your office is next to your bedroom. On the other hand, you may be the type who always thinks about work...particularly now that you're in a business you love. In that case, you might constantly venture into the office when you're bored, or when you want to develop an idea that's popped into your head.
The Lonely Life
A major problem may arise with outgoing, gregarious types. If you like mixing with others, working at home can be awfully lonely. There will also be times when the walls of your home remind you of work. These factors ultimately depend upon your preferences and personality.
If you work from your home, you may receive favorable tax treatment--if, of course, you follow the rules. The portion of your home used for business must be used "regularly and exclusively" for business purposes. Your home office must also be the principal place that you conduct your trade or business, or a place where you regularly meet with clients, customers, or patients. If you meet all of the requirements, you can deduct that portion of your home expenses that would be deductible if incurred in a trade or business and that is allocated to the section of your home dedicated to your business.
For example, if your home covers 4,000 square feet, and your home office occupies 1,000 square feet, you may be able to deduct 25 percent of your home expenses (1,000 / 4,000 = 0.25 or 25 percent).
Caution: The tax implications of a home office are complicated. Also, a home office may affect the tax treatment of the sale of your home.
Check Local Zoning Regulations
Some cities have zoning regulations that prohibit or limit home businesses. Check to see if your locality does.
Don't Quit Your Job...Yet
If you're working now, don't quit too soon. Wait to see if your home business can support you.
Be Professional
Have a fax machine, a separate phone line, and quality bond paper. Remember, if you're not a big business, you can still look like one.
Keep Great Records
You can probably take a deduction for the portion of your home expense dedicated to your business. However, you must be sure to keep thorough records of all your expenses and transactions. Make sure you don't commingle funds. Use company checks to pay for business expenses, for example.
Think About Benefits
If you're not covered under someone else's plan, you'll need health insurance. You can call your local chamber of commerce for information on affordable coverage. In addition to health insurance, you'll need to consider retirement plans: simplified employee pension plans (SEPs),individual retirement accounts (IRAs), or Keogh plans.
Write a Business Plan
Next, you should begin preparation for your business plan. The business plan is the blueprint of your business. This blueprint will guide the future of the business as well as serve as a means to measure its success.
Grow Your Business
To do this, you'll need to actively seek out potential customers and introduce them to your business. Get to know who buys your product or uses your service. What do they have in common? How can you find others with similar needs? Test out your marketing ideas on friends and family, and don't be afraid to leave the house and hit the pavement. Yes, you are the salesperson as well as the owner, manager, and marketer. Finally, focus on your strengths. Do what you do best and hire others to do the rest.
Additional Information
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Labels: Education/Work