A few things to Consider

before Starting a home business

In areas zoned "Residential," your type of business may not be permitted.. In many areas, restrictions rule out home businesses involving the in and out traffic of customers, clients and even employees. Make sure you check with your local zoning office to see how the ordinances in your area may affect your plans. Many towns grant home occupation permits for businesses such as typing, and teaching, but do not permit photographers, interior decorators and home improvement businesses to operate from the home. The important points the zoning officials will consider will be how your business will affect the neighborhood.

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 as either the principal location of your business,

Another concern will be the storage of any 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.

To be eligible for business deductions, a business must be an activity undertaken with the intent of earning a profit. It's presumed you meet this requirement if your business makes a profit in any two years of a five-year period.

When the business gets this far along, 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.

If the business is run out of a room that's 10 by 12 feet, and the total area of your home is 1,200 square feet, the business space factor is 10 percent.

An extra computation is required if your business is a home day care center. If you're a renter, you can deduct the part of your rent which is attributable to the business share of your house or apartment. Homeowners may take a deduction based on the depreciation of the business portion of their house.

If you are self-employed, you claim your business deductions on SCHEDULE C, PROFIT (or LOSS) for BUSINESS OR PROFESSION. The IRS emphasizes that claiming business-at-home deductions does not automatically trigger an audit on your tax return. Even so, it is always wise to keep within the proper guidelines, and keep detailed records if you claim business related expenses when you are working out of your home.