Every
year, several thousand people develop an interest in 'going
into
business'.
Many
of these people have an idea, a product or a service they
hope
to promote into an income producing business which they can
operate
from their homes.
If
you are one of these people, here are some practical thoughts
to
consider before hanging out the "Open for Business" sign.
In
areas decided as 'Residential Only', your proposed business
could
be illegal. In many areas, restrictions
rule out home
businesses
involving the coming and going of many clients,
customers
or employees. Many businesses that sell
or even store
anything
for sale on the premises also fall into this category.
Be
sure to check with your local town hall to see how the
regulations
in your particular area may affect your business
plans.
You
may need special permission to operate your business from
home;
and you may find that making small changes in your plan will
put
you into the position of meeting differing standards.
Many
communities grant home occupation permits for businesses that
involve
typing, sewing and teaching, but turn thumbs down on
requests
from photographers, interior decorators, and home
improvement
businesses to be run from the home!
And
often, even if you are permitted to use your home for a given
business,
there will be restrictions that you may need to take
into
consideration.
By
all means, work with your council people, and save yourself
time,
trouble ... and cash!
One
of the requirements imposed might be off-street parking for
your
customers or patrons.
And,
remember, signs are generally forbidden in residential areas.
If
you teach, there is almost always a limit on the number of
students
you may have at any one time.
Obtaining
official approval for your business, then, could be as
simple
as filling out an application, or it could involve a public
hearing.
The
important points the council officials will consider will
centre
around how your business will affect the neighbourhood.
Will
it increase the traffic noticeably on your street?
Will
there be a substantial increase in noise?
And
how will your neighbours feel about this business alongside
their
homes?
To
repeat, check into the local restrictions, and then check again
to
determine if you will need extra permission.
If
you're selling something, you may need another licence, and be
required
to collect VAT on your transactions.
The
tax requirement would result in the need for careful record
keeping.
Licensing
can be an involved process, and depending on the type of
business
it could even involve the inspection of your home to
determine
if it meets with local health, environmental, building,
fire
and safety regulations.
Should
this be the case, you will need to bring your facilities up
to
the local standards. Usually this will
involve some simple
repairs
or adjustments that you can either do personally or hire
out
to a handyman at a nominal cost.
Still
more items to consider; Will your
homeowner's insurance
cover
the property and liability involved in your new business?
This
must definitely be resolved, so be sure to talk it over with
your
insurance man.
Tax
deductions, which were once one of the beauties of engaging in
a
home business, are not what they once were.
To
be eligible for business related deductions today, you must use
that
part of your home claimed exclusively and regularly as either
the
principal location of your business, or the place reserved to
meet
patients, clients or customers.
An
interesting case in point: if you use your den or a spare
bedroom
as the principle place of business, working there from
8:00
to 5:00 every day, but permit your children to watch TV in
that
room during the evening hours, the Inland Revenue dictate
that
you cannot claim a deduction for that room as your office or
place
of business!
There
are, however, a couple of exceptions we will note to the
"exclusive
use" rule.
One
is the storage of inventory in your home, where your home is
the
location of your trade or business, and your trade or business
is
the selling of products at retail or wholesale.
According
to the revenue, storage space must be used on a regular
basis,
and be a separately identifiable space.
Another
exception applies to day care services that are provided
for
children, the elderly, or physically or mentally handicapped.
This
exception applies only if the owner of the facility complies
with
the local rules for licensing.
To
be eligible for business deductions, your business must be an
activity
undertaken with the intent of making a profit.
It's
presumed you meet this requirement if your business makes a
profit
in any two years of a five year period.
Once
you are this far along, you can deduct business expenses such
as
supplies, subscriptions to professional journals, and an
allowance
for the use of your car or van.
You
can also claim deductions for home related business expenses
such
as water rates, and in some cases, even a new paint job for
your
home!
The
revenue is going to treat the part of your home you use for
business
as thought it were a separate piece of property.
That
means that you'll have to keep good records and take care not
to
mix business and personal matters.
No
specific method of record keeping is required, but your records
must
clearly justify any deductions you claim.
There
is a limit to the amount you can deduct.
This
is the amount equal to the gross income generated by the
business,
minus those home expenses you could deduct even if you
weren't
operating a business from your home.
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As
an example, mortgage interest is deductible regardless of any
business
activity in your home, so you must subtract from your
business'
gross income the percentage that's allocatable to the
business
of your home.
You
thus arrive at the minimum amount for home-related business
deductions.
It
is always wise to keep meticulously within the proper
guidelines,
and of course keep detailed records if you claim
business
related expenses when you are working out of your home.
You
should discuss this aspect of your operation with your
accountant
or a person qualified in the field of small business
tax
requirement.
Do
check the latest details with your local Tax office!
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