Tag: home-based business

Local Ordinances and Your Home-based Business

For the HBB aspirant

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 and grow into an income producing business which they may be able to operate from their homes. If you have such aspirations, there are some practical steps to consider before hanging out your “Open for Business” sign.

Ordinances in some areas may prevent you from operating your business, in the sense that, if you live in an area that is zoned “Residential Only,” your proposed business could be illegal depending on the activity in which you must engage to operate it. In those areas, zoning restrictions rule out home businesses that depend on the coming and going of too many customers, clients and/or employees; and if your business is the type that sells or even store anything for sale on the premises, it will fall into this “restricted” category. So be sure to check with your local zoning office to find out how the ordinances in your particular area may affect your business plans.

Quite possibly, a special permit may be needed to operate a business from your home; but you may find that making small changes to your plan will put you into the position of meeting zoning standards. There are a number of communities that grant home occupation permits for businesses that involve typing, sewing, teaching and/or tutoring, but turn a thumbs down on requests from photography, interior decoration and home improvement businesses to be operated from the same home. The variety of home-based business that does not require special permits or licenses and does not violate any zoning ordinances, is commonly known as network marketing businesses, many of which are done via the Internet or Web; thus, Web-based business.

Get into your zone

Keep in mind that, if you are permitted to use your home to operate a given business, there may be restrictions and requirements that you will need to take into consideration; but by all means get to work with your zoning people and save yourself the time, trouble and dollars by finding out what is permissible and what is not for your area. One of the most obvious requirements you may have to comply with is off-street parking for your customers or patrons; and since signs are generally forbidden in residential communities this will likely have a direct impact on the number of students you could have at any one time if your business is teaching or tutoring, for example.

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Obtaining zoning approval for your business is not something you should worry about too much because the process could be as simple as filling out an application. However, it is important to understand that it could also involve a public hearing. In either case there is no cause for worry; just know that the important points zoning officials will consider often center around how your business will affect the neighborhood. Will it increase the traffic noticeably on your street? Will there be a substantial increase in noise? And how will your neighbors feel about this business in such close proximity to their homes?

So check into the zoning restrictions, and then check again to determine if you will need some kind of license from your local government. For example, if you’re selling something, you may need a vendor’s license and/or be required to collect sales taxes on your transactions. A sales tax requirement would result in the need for careful record keeping.

License to operate

Licensing can be an involved process and, depending upon the type of business, it could even involve the inspection of your home to determine if it meets with local health, building and fire codes. Should this be the case, you will need to bring your home business facility up to the local standards. Usually this will involve some simple repairs or modifications that you can either do personally, or hire out to a handyman to do at a nominal cost. Still more items to consider: Will your homeowner’s insurance cover the property and liability in your new business? This must definitely be resolved; so be sure to talk it over with your insurance agent.

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 designated EXCLUSIVELY AND REGULARLY as either the principal location of your business, or a place reserved to meet patients, clients and/or customers.

An interesting case in point: if you use your den or a spare bedroom as the principal place of business, working there from 8:00 to 5:00 every day, but permit your children to watch TV in that room during evening hours, the IRS dictates that you cannot claim a deduction for that room as your office or place of business. There are, however, a couple of exceptions 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 sale of products at retail or wholesale prices. According to the IRS, such storage space must be used on a REGULAR Basis, and be a separately identifiable space.

Exceptions and expenses

Another exception applies to daycare services that are provided for children, the elderly, or physically/mentally handicapped. This exception applies only if the owner of the facility complies with the state laws for licensing. To be eligible for business deductions, your business must be an activity undertaken with the intent of making profit. It is presumed you meet this requirement if your business makes a profit in any two years of a five-year period.

Once you have started and are reasonably far along in your business operation, you can deduct business expenses such as supplies, subscriptions to professional journals, and an allowance for the business use of your car or truck. You can also claim deductions for home related business expenses such as utilities, and in some cases, even a new paint job for your home, depending on the necessity for such improvement as it relates to operation of your business.

IRS is going to treat the part of your home used for business in the same manner as it will treat a separate piece of property. This means that you will 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 indicate and justify the deductions you claim.

You can begin by calculating what percentage of the house is used for business, either by number of rooms or by area in square footage. Thus, if you use one of the five rooms in your home for your business, the business portion equates to 20 percent; and if you run your business out of a room that is 10 by 12 feet out of a total area of your home measuring 1,200 square feet, the business space factor equates to 10 percent.

An extra computation is required if your business is a home day care center. This is one of the exempted activities in which the exclusive use rule does not apply; but you can certainly check with your tax preparer and/or the IRS for an exact determination. Also keep in mind that if you are a renter, you can deduct the part of your rent which is attributable to the business share of your house or apartment. Homeowners can take a deduction based on the depreciation of the business portion of their home.

There are limitations to the amount you can deduct which equates to an amount equal to the gross income generated by your business, minus those home expenses you would deduct even if you were not operating a business from your home. The best examples would be real estate taxes and mortgage interest that are deductible regardless of any business activity in your home; so you must subtract from your business gross income the percentage that is allocable to the business portion of your home. You should then arrive at the maximum amount for home-related business deductions.

Reporting income

Your self-employment business deductions are claimed on form SCHEDULE C (Profit or Loss from Business). The IRS emphasizes that claiming business-at-home deductions does not automatically trigger an audit on your tax return; but even so, it is always wise to meticulously adhere to proper guidelines and, of course, keep detailed records if you claim business related expenses when you are working out of your home. it is a good idea to discuss this aspect of your operation with your tax preparer or a person qualified in the field of small business tax requirements.

If your business earnings aren’t subject to withholding tax, and your estimated federal taxes are $100 or more, you’ll probably be filing a Declaration of Estimated Tax on Form 1040 ES. To complete this form you will have to estimate your income for the coming year based upon projections and also make a computation of the income tax and self-employed tax you will owe.

The self-employment tax pays for Social Security coverage; but if you have a salaried job covered by Social Security, the self-employment tax applies only to that amount of your home business income that, when added to your salary, reaches the then current ceiling. When you file your Form 1040-ES, which is due April 15 (unless April 15th falls on a holiday or weekend day during normal times), you must make the first of four equal installment payments on your estimated tax bill.

Key to Building a Subscriber List: Trust!

Fashion world descends upon us

Trust earned begets loyalty

Let me begin by saying that there are many elements of a home-based business that are specific to that business type in the same way that there are those elements of a Web-based business that are specific to that business type; but there is a set of elements shared by both business types in today’s business landscape and many of those common elements have been discussed in many of the posts of this site. One such element is trust.

While the rest of the world have developed many barriers and protections to keep their email accounts spam-free, there are also those who subscribe to emails that promote their products, services and websites because this particular group of subscribers want to know more about what these sites are offering that may be beneficial for them. They subscribe because they wish to be kept informed about marketplace aspects that interest them as well as new trends and developments in the field they’ve chosen.

Most businesses would be fortunate to have this type of subscriber as representative of their customer base; but attracting and cultivating such subscribers would require the business to demonstrate the one basic element needed to do so. That element is trust. However, it is a known fact – offline as well as online – that before consumers will entrust a business with their time, information and money they must first know and like that business. Only then will consumers trust the business, after which they will reward it with their loyalty.

Enhanced security steps

This is evidenced by the fact that many internet users have gone to great lengths to protect their email accounts from spam mail, supported by the steps taken by some free-mail internet providers and internet service providers (ISPs) to offer spam protection while others incorporated the added step of screening the incoming emails of their users. These considerate and well meaning steps taken by the free-mail providers and ISPs have led businesses and email marketers to adopt guidelines set forth by the CAN-SPAM Act and require anyone wanting emailed information to authorize such emails by providing their name and email address via an “opt-in” (subscriber) Web form.

An opt-in or subscriber email list therefore consists of members who have agreed to receive email sent by the business or email marketer which might contain promotional material such as newsletters, catalogs and marketing media which should be permitted through by ISPs (although some are still held up). When intended recipients are able to read and view email sent by the business it is considered a successful transfer of information; but it starts with securing the trust of internet users not previously known to the business, and vice-versa.

Credibility begets trust

The entire process of getting consumers to know, like and trust you and your business is no doubt a huge accomplishment and, in the realm of Web marketing, major achievement; but it is worth every minute spent in doing so. That having been said the following paragraphs provide a few suggestions as well as some steps a business – both Web-based and home-based – can take to gain the trust of potential list members.

Although described above as a process it does not mean that getting the trust of website visitors should not be too difficult a task, especially if you have a legitimate business; because part of getting your customers’ trust is undoubtedly based upon your expertise, and people tend to rely on professionals who know what they are talking about. So demonstrating credible knowledge, trends and industry norms about the business you chose is a good first step in getting consumers to pay attention to your business; and if you are not yet in an established business, a display of such know-how and industry savvy could go a long way toward that objective.

Put another way, show your prospective subscribers and customers that you know what you are talking about by provide them with helpful hints and guidelines that pertain to what you are promoting and/or selling. Talk about how to install a roof if you’re into hardware products, or provide articles on insurance settlements if you’re a settlement lawyer. You don’t have to be a big corporation to make use of an subscriber list. If your customers see you as someone who knows what s/he is doing and saying, they will trust you quicker than otherwise.

Trust builds reputation

Be true to your customers in the sense that if you want to hype your products/services it enhances your credibility to provide guarantees, because the more satisfied your customers are the more of a probability that they will recommend you to others; and those recommendations and referrals would help to build your reputation in the marketplace since it is a known fact that most people tend to trust someone they know and when that someone recommends you there is a greater probability that you’ll be more of an acceptable choice. Some of these recommended folks will go to your site just to check it for themselves and others will go to make a purchase.

Another tip in getting a customer to trust you quickly is to provide them an escape out of any agreement or contract they signed with you. This shows them that you are not there to trap them into something they really don’t want. A good example of how to do this is by providing a link at the bottom of each email you send that would enable them to unsubscribe anytime they want. In addition you can modify your web form by providing information on how to unsubscribe from the list. Guarantee them that they can let go of the service whenever they want to, thereby removing any reason for them to be wary (leery?) about signing up in the first place.

It may help to keep in mind that when you get the trust of your website visitors and potential customers and clients you must do everything within your power to keep that trust, because if you don’t cherish (place the highest value) on it, chances are you won’t have it for too long. For example, if you do anything with their email addresses like sell them or farm them out to others who should not have them, you will lose many members of your list as well as members of your customer base. The quickest way to degrade the quality of your subscriber list and collapse your customer base is to disappoint those who have recommended others to you. So keep the trust.