The Pros and Cons of Launching Your Business From Home

Looking for a way to launch your business with the minimum investment possible? Then consider setting up shop in a home office rather than a commercial space.

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Working from home makes a lot of sense when you're launching a business and have limited startup funds.

In addition to saving beaucoup bucks on operating expenses like rent and utilities, you'll save on commuting costs and wardrobe expenses. You may even be able to take a tax deduction equal to the percentage of your home that's used as Business Central.

But there are some disadvantages to working from home. Clients may not find your cozy home office very professional.

You personally may find it difficult to concentrate on work when the sun is shining, or when the mall, golf course, or your children are chanting your name. Friends and family also may drop in unannounced because you're at home. And the list of distractions goes on.

Minimize these distractions by establishing your office in a spare room or quiet corner that can be dedicated strictly to the business. Furnish it with office furniture (even if second-hand) and invest in a business computer. Install a separate business phone line with voice mail.

Then make it very clear to well-meaning visitors that you maintain regular business hours and that the computer is off-limits to the kids. If necessary, arrange to meet clients offsite if your home office doesn't reflect your image as a savvy professional.

Finally, before you hang that shingle, make sure your municipality doesn't have ordinances that prohibit home-based businesses.

Some communities ban certain types of businesses, including those that will generate a lot of traffic or have employees working onsite. Make sure you know the rules before you hang out your shingle.

You may be able to claim the home office deduction on your annual tax return. This generally applies to sole proprietorships. To claim the deduction, the part of the home you use for your office must be your principal place of business, or you must use it to meet or deal with clients in the normal course of business. Keep in mind that you can't claim the deduction if you have an outside office as well.

Business owners who keep records, schedule appointments and perform other administrative or management activities from their home offices qualify for a deduction as long as they don't have any other fixed place of business where they do a large amount of administrative or management work. This holds true even if they don't see clients or customers in their home offices. The IRS scrutinizes this deduction very carefully, so be sure to follow the rules and keep good records.