Forming an LLC to Protect Your Home Business
Where to house your business is one of the first decisions in forming an LLC. Before you sign a lease consider forming an LLC out of your home. Running your business out of your home can reduce start up costs and provide you with a more flexible work schedule. But, there are a few things to consider before you decide:
- Does your home give you the workspace you need?
- Do the zoning ordinances in your area allow for a home based business?
- What type of insurance does a home business need?
If you are forming an LLC, you will need the right workspace. Think about your business needs to determine if your home can accommodate them. Does your home have storage space if needed? Does your business require extra power sources or refrigeration? Is there an area in your home where you can handle phone calls uninterrupted?
Based on your above answers, if you home still feels like the right place to do business, next consider zoning. City or county zoning laws can affect your home business. In some residential areas, local zoning ordinances prohibit all types of business. However, a great majority of city and counties have residential zoning laws that allow small, nonpolluting home businesses as long as the home is still primarily used as a residence and the business does not adversely impact the neighborhood. To determine whether residential zoning rules allow for a home business, a copy of your local ordinances can be obtained from your city or county clerk’s office, the city attorney’s office or your local library. But, before you make the trip, check your city’s home page, they may have the ordinances available on-line.
Don’t solely rely on your current homeowners’ or renters’ insurance when forming an LLC out of your home. A regular homeowners’ or renters’ policy many not be enough coverage to protect your business equipment, or cover you from liability. Check with your insurance, many policies do not cover business use of the home. For example, if you home is damaged or lost due to fire, your insurance coverage could be void because the insurance company was not aware of your home business. You can avoid a costly mistake by fully disclosing to your insurance agent your plans to run a home business. Your agent can assist you in adding a relatively inexpensive rider to your policy to protect you. Remember to ask your agent about adding any needed liability and auto coverage.
Don’t forget the home office tax deduction. Forming an LLC out of your home can help lower your tax bill. If you can meet the requirements of the tax law, the IRS will allow you to deduct a percentage of the costs of running your home, such as, mortgage interest, real estate taxes, utilities, rent, insurance and even qualified repairs or improvements.
In today’s economy, it is smart to be careful with expenses when starting up a business and starting in your home can be a perfect solution for many entrepreneurs. Even in a good economy some great business ideas start off in a home or backyard garage. Anyone remember how Apple Computers started? The point is, that forming an LLC doesn’t necessarily mean a huge company. It’s a great way to protect a small start up business, too.
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