Running An LLC From Your Home

January 24, 2020 5:47 pm Published by

Running An LLC From Your Home

For a growing number of people, registering an LLC and running it from their homes is a great way to build a business while keeping their overhead low. Many people find this type of home-based business to be a lucrative opportunity to enjoy the benefits of having a burgeoning LLC while making use of all the advantages of running a business out of a property they already pay for each month. However, like any other home-based business, using your home as the head office of your LLC comes with both advantages as well as disadvantages. The key to success is maximizing the former and overcoming the latter.

running an llc from home

Advantages Of Running A Home-Based LLC

Reduced Costs

One of the major advantages of running a home-based business is the savings the business owner enjoys. Paying for a commercial space from which to run a business is one of the biggest expenses business owners must take care of each month. This can escalate start-up costs and take a big bite out of the bottom line. Being able to eliminate this monthly financial drain is one of the reasons running an LLC from your home is so attractive. Not having the burden of facing a high lease payment each month makes it much faster and easier to start an LLC and make it profitable.

Combining The Expenses

Another advantage of a home-based LLC is the ability to combine your business expenses with the costs of running your home. You are already paying a rent or mortgage for your home, so as long as you have the room you need to create and operate a home office for your LLC, that one monthly payment will cover the cost of both your living space and your business. The same is true of your utility bills. Depending on the type of LLC you have, it shouldn’t add too much to your utility bills. This means instead of paying two power bills, you may just add a little more and cover both your home and business power costs. This is ideal when you are just starting your business.

Tax Deductions

As long as your LLC meets certain requirements, it’s possible to get a tax deduction for your home office. You may also be able to deduct a percentage of the amount it costs to run your home as a business expense and deduct it from the taxes you owe. This can include a portion of the interest on your rent or mortgage, as well as the cost of your utilities and other expenses associated with running your home. For some people that can make a significant difference in their annual tax bill. And with all the costs associated with starting and running a business, this can be a big help.

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The Tax Deduction Criteria

There are two basic criteria that must be met in order for people with a home-based LLC to qualify to take a home office tax deduction. First, the area in your home that you use to run your home-based LLC has to be used on a regular basis exclusively for operating your business. That means you consistently use it for work related to your LLC for a set amount of hours each week or month. Exclusive use means the space that is dedicated to running your LLC cannot be used for anything that is related to your personal life. Using your kitchen table where you and your family gather to eat your meals as a workstation for a few hours during the day does not qualify as exclusive use. However, running your business from a dining table that is never used for anything else does qualify as exclusive use.

Principal Place Of Business

The second criteria your home must meet in order for you to qualify for a tax deduction is it must serve as your LLC’s principal place of business. It must be the only place where you do your business’ administrative or management duties. If you have another fixed location where those tasks are performed, your home-based LLC will not qualify for the tax deduction. If you regularly use your home office, garage, or any other building on the property exclusively to meet with customers, this will also qualify it as your principal place of business and you can get the home-based business tax deduction.

Lifestyle Advantages

For people who have spent a significant portion of their lives working outside of their homes for an employer, running a home-based LLC offers a number of attractive lifestyle advantages that they will enjoy. One of the most attractive ones is not having to fight with traffic and commute to work each day. All you have to do is wake up and get dressed and you are already at work. That gives you more hours each day you can spend growing your business. Another lifestyle advantage of running a work-at-home business is you get to set your own schedule and not have to be stressed out racing to punch the clock at hours someone else sets.

Wear Whatever You Want

Many people also enjoy the freedom of being able to wear what they want whether it is fluffy slippers and pajamas or casual clothing. A large number of home-business owners say setting their own work dress code not only makes them feel more comfortable and be more productive, but it also saves them lots of money. They no longer have to purchase a specific business wardrobe that is required in corporate or other types of business environments. They can decide if and when they need to invest in business attire that is separate from the clothes they wear every day. The money saved goes directly to their bottom line and can make their LLC more profitable.

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Disadvantages Of Running A Home-Based LLC

While running your LLC from your home may provide you with a number of advantages that you enjoy immensely, having a home-based business also has some disadvantages. They include:

A. Credibility Issues
B. Loss Of Personal Space
C. Loss Of Privacy
D. Safety Concerns
E. Need For A Business Address
F. Paying A Registered Agent

A. Credibility Issues

With certain industries and types of businesses, having a home-based can lead to credibility issues. In some industries and businesses having a professional image is mandatory for success. Some customers may not take someone who operates an LLC out of their home seriously. They may question whether they will be able to provide the high-quality service they want. Clients may question their professionalism because the company isn’t located in an office building. Often people decide not to do business with a home-based company because of concerns they may not have the appropriate resources or trained staff. Some home-based businesses have to try hard to overcome this by making sure the home-office environment is designed to project a high level of professionalism.

B. Loss Of Personal Space

If you want your home-based business to qualify for a tax deduction, you have to give up some space in your home for the exclusive use of your business. That means your extra bedroom, your den or at least your dining room table becomes off-limits to you and your family when you are involved in personal activities. This means your home has just become a little smaller and you have lost some personal space. While this may not be a problem for large homes with unused extra bedrooms, for people with smaller homes or large families, having to give up some personal space can be challenging and may make the home feel a little bit cramped.

C. Loss Of Privacy

When you are running your LLC out of your home, you are going to have to sacrifice some of your privacy. That could mean clients trooping through your home for meetings and glancing around at how you and your family live. Your family’s idiosyncrasies are exposed to the public. They have to be a little more careful with how they dress, what they do, and how neat they keep your home. Depending on what type of matters you plan to discuss, you may also have to consider holding the meeting at the client’s place or in a local restaurant or coffee shop, even though it will be somewhat less private than holding it in your home office.

D. Safety Concerns

Another of the disadvantages of running an LLC out of your home is not knowing if you can trust all the people who come to your home under the guise of wanting to discuss business. Some nefarious characters use that as a ploy to come into your home to see what types of valuables and security systems you have. These unscrupulous people can share that information with friends or return at a later time to attempt to break in and steal. This also puts the health and safety of you and your loved ones at risk. This is something to which you must give much thought before setting up your home-based
LLC.

E. Need For A Business Address

As the owner of a home-based business, you have to think twice before listing your home address as your business address on your business cards, flyers, websites, and other marketing mediums. Some people opt to use mailbox services, PO boxes, co-working spaces, and virtual office spaces as their business addresses. However, this is an added business expense. Having a secure business address is a must because even if you have an online business, you need a business address for your corporate records. However, some people may be reluctant to do business with you if your business address is a PO box.

F. Paying A Registered Agent

A business listed as an LLC has to have someone designated as the company’s registered agent. That is a person authorized to receive, process, and respond to notices as well as official government correspondence on your corporation or LLC’s behalf. The registered agent is usually chosen when you first start a business. Often one of the members of the LLC will be designated as its registered agent and the physical address of the business is listed as the address of the registered agent.

An Additional Business Expense

People with home-based businesses may not want their home address posted on the public record as being the address of the registered agent. They may opt instead to hire a third party like a company or an attorney to provide registered agent services and have their address listed on all public documents. However, this is an additional business expense for your new home-based LLC.

Legal Business Requirements

Legal Business Requirements

Once you have decided to move forward with your home-based LLC, there are a number of legal requirements you must fulfill before you can hang out your shingle and begin to solicit clients. Those legal issues include checking the requirements for your business license, checking your lease, if you are renting, to ensure running a business from the property is not a violation of its terms, and checking the local zoning laws to ensure you can legally operate a home-based business in that residential
location.

The Business License

When you are setting up a home-based LLC, you have to check the business licensing requirements for that type of company. Before you can begin doing business, it’s necessary to apply for and receive the appropriate permits and the business license needed to operate a business in the state and in your local area. This should be among the first steps you take.

Check Your Lease

If you are leasing or renting the home in which you live, before you attempt to set up a home-based business there you must check your lease carefully. Some leases prohibit tenants from conducting business on the property. They stipulate that the property is to be domicile and not be used for commercial activity. Running a home-based business from the property may violate the terms of the lease and get you evicted. So read the lease carefully before you set up shop.

Check The Local Zoning Laws

Some parts of a city are only zoned for residential properties. Setting up a business there would violate that law and could cause you to incur a hefty fine. Before starting your home-based LLC, check with the local planning office. They will let you know whether there are restrictions against running home-based businesses in the area in which you live. Some common restrictions home-based businesses sometimes have to follow include restrictions on how many people may visit the business, the maximum number of people it may employ, the type of signage you may use, and where it is legal for your customers to park.

Do A Little Research

Running a home-based business can be a great way to start and build a business and make a lot of money while keeping overhead and fixed expenses low. However, before you start you have to do a little research. You have to get information on business licenses, permits, and zoning laws. You should also take a close look at the advantages and disadvantages of running an LLC from your home before making your decision.