How to Legally Work from Home

When starting a home-based business, you’ll need to make sure you don’t violate any local, state or federal laws. Understanding the legal ramifications of working from home and how you can stay in compliance with applicable laws will help you avoid unnecessary problems.

Research the paperwork you’ll need to launch and run your business

Get Some Advice

Meet with an attorney or accountant to discuss the tax implications of working from your home. You may benefit from incorporating, trade marking a business name or dedicating a portion of your property as work-related area, such as an office or storage area. Find out how to file any necessary paperwork with local, state and federal agencies. This might include a local business permit, state license or incorporation or federal employer identification number.

Home Office Myth

It’s just not true that a home office is a red flag with the IRS. The IRS doesn’t have time to audit every mom-and-pop business working from home. Don’t listen to family and friends — It’s. a myth. Besides, if you don’t plan on breaking the law, an audit’s not going to get you in trouble.

Read the rules and regulations governing working from home if you rent or lease your home, or live in a house that is part of a homeowner’s association. You probably won’t be able to sell items from your home because of the increased traffic. You might also be prevented from making or storing certain things on your property. Follow all rules regarding working from home, which may include filing certain papers or notifying property management or your homeowner’s association.

Check your Local Rules

You’ll most likely need a local business permit, which might cost between $50 and $100. Visit your city’s or town’s website and locate the business licensing information. File the necessary paperwork, which will require applying for a business license and paying a fee. It’s usually a pretty quick process.

Take Care of State and Federal Business

Visit your state’s secretary of state website to see if the type of business you plan to run will need to operate under the regulations of any state agencies, such as the health department. This might include businesses such as massage therapy, personal training, catering or day care. File an application for an employer identification number with the IRS if your attorney or accountant recommended you do so. Even if you don’t plan on having employees, this is the tax number you will use to file tax returns if you incorporate. If you sell goods, you might need to pay sales taxes on a monthly or quarterly basis.

Keep Accurate Records

Measure the square footage of any physical space you plan to use for your business. You will use this square footage to determine the amount of your rent or mortgage, as well as utilities, you can deduct as business expenses on your taxes each year.

Keep records of all expenses associated with your business. File your inome taxes using information you can prove, such as deductions for utilities, office expenses, home office, mileage, meals and entertainment, licenses, dues and subscriptions or business travel. This means keeping copies of bills, invoices, receipts, checks, bank statements and credit card statements.

File and pay accurate taxes based on how you are operating–as a corporation, or under the “doing business as” classification, which allows you to use an unregistered name, filing any business income and expenses on your personal tax return. Renew all licenses and permits each year.

Additional Resources

My Own Business: Business Licenses, Permits, and Business Names

U.S. Small Business Administration: Handle Legal Concerns–Legal FAQ’s

Home Biz Tools: Home Business Legalities