Advantages and Disadvantages of Home-Based Business

A home business is any business whose headquarters are in the owner’s home. You don’t have to own property, but you must operate the business outside of the same place where you live for the business to be considered a home company.

Although we consider homeowners to work from home, this is not necessarily the case. Software instructors, truck drivers, and interior designers are just three examples of people who can run a home business but need to travel to perform their services.

Starting a home business depends on your situation

Many online businesses are ideal for private businesses but also for professionals, from travel agents to notaries who run private businesses.

The advantages of home businesses

There are several aspects to running a home business that draws people to it, particularly when it comes to saving money on expenses and taxes.

No commuting

The most obvious home business advantage is the lack of any commute, which saves a tremendous amount of time and eliminates the need to spend money on bus fare or car expenses. For many home-based business owners, their commute consists of just walking down a flight of stairs, unless you have to do a lot of traveling anyway to visit customers.

Lower overhead

All home businesses share the advantage of not having the expense of buying or renting business premises elsewhere, which cuts down on overhead considerably. Because there is no separate office to rent or maintain, they may also save money on expenses such as utilities, and—depending upon local regulations—the cost of business licenses and taxes.

Income tax advantages

Running a home-based business can be a great way to recoup your business expenses and in some cases, reduce the amount of income tax you have to pay.

To qualify for a reduction in income taxes, your office space area needs to pass the “exclusive use” test, which means you must be able to show that a portion of your home is your principal place of business and is used regularly and exclusively for running the business. If you just work off your kitchen table and you also use that area for family dinners and other activities, the IRS won’t let you take a deduction on it.

Family time

If you have children, operating a home business can give you more flexibility with child care and more time to spend with your family.

Once they’re old enough, you might even employ your children in your business. It’s perfectly legal as long as you follow the rules. Payments for the services of a child under the age of 18 who works for his or her parent are not subject to federal social security and Medicare taxes, as long as you run sole proprietorship or partnership. The child is also not subject to the Federal Unemployment Tax Act (FUTA) until the age of 21. However, payments to the child are subject to income tax withholding no matter the age.

Always consult with an attorney before taking steps to employ your children in your business so that you can ensure you comply with all federal, state, and local regulations, which may vary greatly depending on locality.

Always consult with an attorney before taking steps to employ your children in your business so that you can ensure you comply with all federal, state, and local regulations, which may vary greatly depending on locality.

The disadvantages of home businesses

A home-based business is not for everyone, however, and there are some disadvantages:

It’s not allowed in some areas

Most municipalities regulate home-based businesses, and particular neighborhoods may have covenants against them. Landlords tend not to be home-based business-friendly if you’re renting.

It might not work for you

Even if running a home-based business is allowable where you live, you may not want to. Issues such as signage, parking, and the need for home-based insurance may make running a home-based business a bad idea. If your clients need to visit you, this can create conflict with your landlord or other tenants (if you live in an apartment building) who may be irritated at the non-resident traffic.

Isolation

Many people who run home businesses experience feelings of isolation and are unaware of it. These feelings can be especially acute for people who spend most of their careers in highly collaborative offices and suddenly have nothing to talk to when they start their full domestic career.

Affects family life

Others find that running a home business means their business is at odds with family life. You may find that running a business outside the home means that family time is constantly consumed by the demands of business and that this blur of the lines between home and business means they never feel far away from it.

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