Here’s what to be aware of:
If you decide that starting a business from home is the way to go, have you considered claiming deductions for some of the expenses relating to the area you use for the business?
If you own your home, you should be aware of the capital gains tax implications for claiming expenses such as interest on your mortgage as it can be quite costly if you decide to sell your home in the future. If you are renting, you may be entitled to claim part of your rent as a deduction, depending on whether or not your address is classified as the principal place of business.
There are also other costs such as rates, gas, electricity and phone bills that you may be entitled to claim. It is worth noting that that some mortgage or rental agreements may restrict you from operating a business from your home, so make sure you get written approval beforehand.
Zoning and permits
You should consider the residential area where your home is located. Depending on the nature of your business, there may be special permits you require relating to zoning, signage, noise levels, energy use and excessive numbers of visitors to your property, or health issues.
Structuring your business
Have you considered what type of business structure you are going to create for your business? The most common types of structures are sole traders, partnerships, companies and various types of trusts. Your tax advisor will be able to explain the advantage and disadvantages of each, be aware that choosing the correct structure can save you a lot of tax through effective planning. The upfront cost of creating a company or trust may be expensive in the short term, but may also save you a lot more down the track once the business is up and running and making profits.
Register your business
Once you have decided which business structure suits you best, have you registered your business name? Are there any licences you must obtain before starting your business from home? Have you registered for an ABN, GST, PAYG Withholding and any other taxes that may affect your business?
You should be aware that standard homeowner insurance policies generally do not provide cover for businesses run from home. Types of insurance you should consider include public liability cover, workers’ compensation, professional indemnity insurance, loss of income, fire, storm and theft cover, and even income protection insurance to cover yourself for any potential loss of earnings.
If your business from home is just starting, have you thought about leasing some of your equipment instead of purchasing a brand new computer or office equipment? In this economic climate, cash is essential in running a business and it may be worthwhile leasing your assets to begin with until your cash-flow becomes more regular.
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