Home Businesses

Regardless of the type of business or industry, entrepreneurs must know their state's important rules and regulations for a small business. This is true whether it's a startup or a seasoned business, especially when running a business from home.

Below, you'll find articles on topics ranging from determining if you're in compliance with local zoning laws to an overview of the day-to-day operations of running a home business.

Form your LLC with confidence. Our trusted partner LegalZoom has packages starting at $0 + filing fees.

Common Home-Based Businesses

Thanks to the internet, home-based businesses pop up often. Common home business ideas for entrepreneurs include:

• Affiliate marketing
• Accountants and tax preparers
• Bookkeeping
• Catering business
• Cottage food preparer and seller
• Customer service and phone work
• Data entry, medical billing, medical coding
• Event planners
• Freelance writers, editors, and bloggers
• Freelance designers
• Freelance computer coders
• Graphic design
• Health, wellness, and nutrition consultants
• Home daycare providers
• Landscaping companies
• Massage therapists
• Online businesses like online tutors
• Online sellers with an Amazon or Etsy shop
• Realtors or those in the real estate industry
• Schedulers
• Social media management
• Transcriptionists
• Translators
• Travel planners
• Web designers, web developers, and app developers

The success of a business based out of your own home depends on your clear understanding of what it means to operate a business. Having a business plan is one way to ensure you know how to manage your time and personal assets while working from home.

Home-Based Business Startup Costs

Running your own business requires financing, even if you have a home office. Your home-based business business plan will guide you through the questions you should answer to fund a successful business.

Common startup costs small business owners must consider include:

• Liability insurance
• Occupational licenses
• Business licenses
• Business permits
• Filing fees for forming your legal business entity with the secretary of state
• Legal fees if you hire an attorney to form your company

You can place initial capital funds into your business bank account. If you're considering a small business loan, factor these costs into your funding request.

Legal Requirements for Running a Home-Based Business

The legal requirements for starting a new business depend on the type of business and your state's laws. Don't let your business idea end in your head. Get your documents and licenses to run the business in compliance with the law.

Forming a Business Entity

It's not required for you to create a business entity formally. But operating as a sole proprietorship opens you and your personal assets, like your home, up to liability. A formal business structure filed with the state, like a partnership, limited liability company, or corporation, can protect you personally in a lawsuit. You likely must register your business with your secretary of state's office. You'll need a business name and some basic information about your business.

Business License

The type of business and your state laws determine what state business licenses you may need. Local government entities like cities and counties often charge a business licensing fee. Some portion of those fees goes to regulating businesses within your community.

• Occupational license
• Seller's permit if you sell products
• Local or state tax registration certificates

For example, if you want to run a home child care center, you may need a professional license, a health department inspection, and a fire department inspection of your home. The same would apply if you offered in-home health care for seniors.

Your city or county issues business licenses. You may need a state-issued license as well. Often, you can apply and pay for your license online.

Self-Employed Benefits and Taxes

Sole proprietors may be able to use just a social security number for tax purposes. If you hire employees, you need an employer identification number (EIN). Contact the IRS to complete any necessary paperwork to register your business. You will also need to set up an account to pay income tax withholding and sales tax and to file your business tax return.

Taxes and the Home-Based Business

If you operate a business from your home, you'll most likely be entitled to a small-business tax deduction. Some key things to remember in connection with the small business tax deduction:

• To qualify, you must use part of your home exclusively for your business.
• Your home must be your "principal" place of business, or you must frequently meet with customers and/or clients in your home.
• If you qualify for the tax deduction, you can deduct costs such as rent, public utilities, insurance, and property repairs.

To take advantage of the small business tax deduction, it's very important that you keep detailed proof and records of your home-based business operation. Be prepared to prove that you intend to make a profitable business out of your home-based activity. It's more than just a hobby.

The Internal Revenue Service (IRS) will allow you to deduct the expenses of running a legitimate business from your home. It will not permit deductions for the costs of a favorite hobby or activity.

Insuring Your Home-Based Business

Home-based business insurance needs are unique. You may already have homeowner's insurance, but be sure to read your policy or talk with your insurance agent. Usually, business assets aren't covered by a home policy, even if it is a home computer you use for business purposes. If clients or customers visit your home, your regular liability insurance may not extend to business guests.

Below are common types of insurance coverages for home businesses:

• Business property
• Professional liability
• Personal and advertising injury
• Loss of business data
• Crime and theft
• Disability

It's better to be protected, particularly if you store large amounts of sensitive data in your home office or have clients visiting your residence. While business insurance can be expensive, there are ways to minimize your premiums.

Check Leases or HOA Restrictions

Before opening your doors at home for your business, ensure you know your real estate regulations.

Leased Apartments or Homes

If you rent a home or apartment, your lease sets out restrictions for using the property. Your lease may restrict you from operating a business. Running a business there would put you in breach and could be a ground for eviction. If your lease doesn't mention it, that doesn't necessarily mean you can open up shop. If your business will disturb the peace of your neighbors with frequent clients, you may find yourself at odds with your landlord.

Owned Homes

If your business will increase traffic or cause parking problems in your community, such as running a high-volume vacation rental out of your home, it may violate local regulations or homeowners' association restrictions. Find out exactly what the Covenants, Codes, and Restrictions (CCRs) state.

Zoning restrictions are always a concern as well. If the zone where you live is not zoned for commercial operations, you may be unable to operate a business from home. Many neighborhoods may have a mixed-use zoning restriction allowing small business operations out of your house.

Speak to your landlord or homeowners' association before beginning a business venture out of your home.

Regulatory Matters

Most home-based businesses don't engage in activities that would trigger a regulatory issue. If your business activities involve the use of dangerous chemicals, it might. Resources at the Small Business Administration (SBA) may help you find out who to talk to before your new business opens.

Home Businesses and Zoning Laws

Local zoning ordinances restrict how properties can be used within an area. Zoning regulations are rarely an issue for home-based businesses because they tend to have few visitors and no outside employees.

Noise, excessive traffic, or use of the neighborhood's parking spaces may trigger zoning concerns. You may avoid problems by negotiating with neighbors and compromising on reasonable hours of operation. If that does not work, you may request a zoning variance.

Signage can also be problematic for home-based businesses in an apartment, condo, or homeowners association. Do you need a sign for your home daycare center? Can you post it? Where? What size and materials are allowed?

Hire a Business Attorney for Your Business Idea

If you're a first-time business owner with a business idea or need extra assistance understanding the law for home-based businesses, consider hiring a small business lawyer. Business attorneys can help with legal problems before they become critical, such as explaining zoning codes or licensing requirements.