From running Indiana’s Department of Local Government Finance to serving as counsel at two large firms, Beth Henkel, 58, is no stranger to big law jobs. But, in February, Henkel grew weary of the long hours and decided to take her business and go home — literally. She opened the Law Office of Beth Henkel LLC in several spare rooms in her house in Indianapolis.
Henkel isn't alone in her decision to work at home. Of the estimated 29.6 million small businesses in the United States, about half are home-based businesses, according to the U.S. Small Business Administration. A recent report on entrepreneurship found that U.S. entrepreneurial activity is at its highest level in 14 years, with people ages 55 to 64 representing the second most active group, slightly behind those ages 35 to 44.
While working from home made her commute much easier, other job-related issues remained complicated. Henkel found herself challenged by the ins and outs of insurance, taxes, zoning, licensing and the like. Those obstacles don't go away just because you're wearing your pajamas to work. If you’re thinking of setting up a home office, here are some practical things to keep in mind.
Insurance. Before you open your doors, call your insurance agent or broker to find out what is and isn’t covered by your homeowners policy, says Timothy Gaspar, founder of Gaspar Insurance Services in Encino, Calif. Policies will typically cover basic office equipment, but the coverage often tops out at $2,500. Homeowners policies also usually exclude business-related liability claims by employees or customers who get hurt on your property.
If you have pricey equipment or a lot of foot traffic to your home, you should consider a separate business insurance policy. A typical policy might provide additional liability and business-equipment coverage, as well as loss-of-income coverage in the event you can't work out of your home due to, say, a fire. Costs vary, but annual premiums might run $500 for $1 million in coverage, Gaspar says. In addition, if you have a business with specific risks, you might require specialized coverage. Henkel, for example, carries legal malpractice insurance.
Taxes. Don't think you can hide from the Internal Revenue Service just because you're now working in the basement. Home-based businesses often face municipal or corporate taxes, just like their out-of-home counterparts. If your income is very modest, however, you are often eligible for tax exemptions. Ask your accountant.