The COVID-19 pandemic and the subsequent restrictions enacted to limit its impact caused several foundational changes in the business world. Companies had to implement a fully-online infrastructure in order to provide access for their now primarily remote workforce.
On the other hand, many employees found working from home to be infinitely better than the old office model and state that they are unlikely to return to it. Some took one step further and decided to follow their dreams and run a home-based business.
Although simplified, a home-based company is still a business and, as such, must comply with the laws and tax requirements for its type.
Consulting a professional small business accountant early on is essential. The experts will help you prepare the necessary documents and point out relevant ways to benefit from your home-based venture, including any applicable tax deductibles.
Each country’s tax system has its own peculiarities, so look for an appropriate accountant firm that can help home-based business owners.
Tax Advantages
Many countries want to encourage business activity and entrepreneurship by offering tax advantages to startups and small businesses.
Furthermore, depending on how the company is structured, it may be eligible for additional tax advantages.
In the US, for example, home businesses qualify for multiple other tax credits and deductibles. The IRS (Internal Revenue Service) allows certain small business owners to use the same tax rate for both their personal and business income, allowing the business owners to write certain expenses off on a personal tax return.
Taking advantage of these deductions and credits would not be possible for people who do not own their own business.
Keep in mind that the eligible expenses are limited to those incurred as a regular and exclusive part of the business operation.
For home-based ventures specifically, the owner can consider a portion of the home as a business expense.
In practice, this could allow for a certain portion of the home’s utilities to be deducted if your home is considered the principal place of business, the place where you meet clients, or where you do administrative work.
Some common deductible expenses include mortgage interest, rent, homeowner’s insurance, Internet, telephone, electricity, property taxes, and more.
Other expenses that the home business owner could be able to deduct against income are eligible travel costs or any professional equipment purchased for their home office, such as computers, printers, or other relevant devices.
Certain repairs or home office improvements may also be claimed as deductibles.
Benefits Of A Home-Based Business
The benefits associated with running a home-based company are multifaceted in nature, starting with eliminating the need for leasing an office.
Lease payments could sometimes be responsible for a significant portion of the business’ fixed costs, e.g., costs that need to be covered even if the operation is currently facing a downturn and is bringing in reduced profits.
Other expenses may also be avoided, such as the potentially higher insurance for operating a brick-and-mortar store, for example, or having to install a professional security system in multiple locations.
There are certainly valid and serious challenges when it comes to setting up a home-based company.
However, the need for far fewer startup funds, because you won’t need to invest in separate office equipment or furniture, could allow people to test if their business idea has potential without burning through all of their life savings
If things work out and you need to expand and hire more people, you can always look into establishing a separate office to accommodate your needs at that time.
Final Words
On the intangible benefits front, a home-based business allows for greater control over your own work schedule. You can tailor the professional tasks around your personal inclinations and the time of day you usually feel the most energetic and motivated, be it early in the morning or late in the evening.
A home-based venture also provides more opportunities for multitasking. Instead of trying to figure out what to do in your forced office breaks, you can finish a house chore, take out the ingredients for today’s dinner, and do myriad other tasks.
While it might seem negligible, the time saved is massive as these daily chores would otherwise take up your entire evening after coming home from the office.
A home-based business can be a great opportunity to finally realize your passion project.
However, to make sure that you are aware and taking advantage of the full range of benefits available to this type of business operation, it may be best to consult with a specialized accounting firm.
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