Another tax rule that can work in favor of home-based workers is the home-office deduction. If you use space in your home exclusively for business, the costs associated with that portion of your house can be deducted on you federal tax return. Eligible expenses can include everything from mortgage interest and property taxes to utility bills and home repairs.
While the home-office deduction is widely considered an “audit trigger” for owners of home-based businesses, enrolled IRS agent Eva Rosenberg downplays that notion. “As long as you have documented your home office with a schematic, some photographs and copies of bills for the expenses you’re deducting, it’s fine,” Rosenberg says.
Zoning. Some municipalities forbid outright home-based businesses; others restrict certain types. While this can be frustrating, it’s better to find out early rather than cough up fines for violating local laws and be forced to relocate or shut down. In addition, some homeowners associations don't allow home-based businesses, so check HOA rules before you have business cards printed.
“You don’t want to invest a lot of money, and then find out that you have to change everything and move out,” says Rosenberg, who runs the TaxMama.com website from her Northridge, Calif., home.
Licensing. A home-based business may require licensing, even if the income stream is modest. Henkel, the stay-at-home attorney, advises home-based business owners to check with the city clerk's office or their state’s economic development department. Trade associations can also provide information on licensing requirements for specific professions.
Safety. Staying safe is equally important to keeping your insurance up to date and paying your taxes on time. Henkel, for example, doesn¹t receive clients in her home, opting instead to hold meetings at a local social club to which she belongs. Rosenberg advises opening a post office box for deliveries. Gaspar encourages home-based workers to keep home offices clutter-free to deter trips and falls, and to avoid overloading circuits with too many electronics so as to reduce fire risk.
You may also like: Great home-based jobs for retirees. >>