Are you thinking about operating your LLC from Home? There are advantages and disadvantages to bringing the office home with you.
Have you registered an LLC and are now pondering running your new business out of your home?
As with any home-based business, there are both advantages and disadvantages to running an LLC from your Home.
When beginning something new, it’s always a good idea to take advantage of the resources you have at your disposal. Here are a few more ways that starting your business from your Home makes sense — especially in the beginning.
For most business owners, the main attraction of running a home-based business is the low cost. This cost factor is an important consideration, especially for start-ups.
It’s much easier to start your business without the burden of a high lease payment looming over you each month.
You’re paying for your home anyway, so if there’s room for you to operate a home office as well, running a home-based business may well be the answer, especially when you’re just starting out.
If you meet specific requirements for the home office tax deduction, you’ll also be able to deduct a percentage of the costs of running your home as a business expense.
This contains a part of your rent or mortgage curiosity and other home-related costs, such as utilities.
How do you prepare for the home office tax deduction? First, the part of your Home you’re using for your home-based LLC must be utilized regularly and singly for your business.
Regular use means you use it consistently for work. Sole use means you cannot allow the space to be used for anything personal.
For example, if you use your kitchen plateau as a workstation during the day but at nighttime you and your family eat there, it wouldn’t qualify as exclusive use. But if you use your dining table as a work table and it never sees personal use—you and your family use your kitchen table instead—it would qualify as exclusive use.
The second benchmarks require your Home to be your principal place of business for your home-based LLC.
To be a principal place of company, you must conduct administrative or management duties related to your business at your home, and you must not have any other fixed location where you also perform these tasks.
If your home doesn’t meet this specific principal place of business criteria, there are two alternatives to the criteria.
If you regularly meet customers at your home, or if you use a separate building located on your property to conduct your business (provided you use it regularly and exclusively), then you will also meet the principal place of business requirement.
If you’ve spent much of your life working for an employer outside of your home, you’ll likely enjoy the lifestyle advantages of running your work-at-home business. These include things like not having to commute, wearing what you want, and setting your own schedule.
Cons of an LLC Home Company
There are plenty of upsides to a home business, but there are some less positive elements you should be aware of before you make the decision.
For specific types of businesses, being home-based can give rise to credibility issues. If you are in an industry where a very professional image goes a long way, for example, you will have to make a particular effort to develop your home office environment, so it projects the needed level of professionalism.
Exclusive use of space for tax purposes. As discussed above, in order to qualify for the home office tax deduction, you have to not only regularly use your home office space for business, you must also use it exclusively for this purpose.
While this isn’t challenging if you have, for example, an unused bedroom at your disposal, If your home is short on space, it may be difficult to carve out an exclusive area for the use of your business only.
If your company is one that requires you to meet with clients regularly, you will most likely have to conduct these gatherings at your clients’ places of business or at a local coffee shop or restaurant.
While it’s definitely possible to do this, you may want to check out services like virtual office spaces or co-working spaces that can provide you with a meeting room for a reasonable fee.
As a home-based company owner, you may have privacy and safety concerns about using your home address on your website or other web listings or even on your company card. While some home LLCs (limited liability companies) opt to not use an address at all online, other options include PO boxes, mailbox services, virtual office spaces, and co-working spaces. However, you typically must provide an address of some sort for your public, corporate records, even if you’re an online business.
Because your company is registered as an LLC, you will need to designate a registered agent for your company. A registered agent is someone who has been designated to receive service of process notices and official government correspondence on behalf of an LLC or a corporation. The registered agent is chosen when you start a business.
Often an LLC will designate one of its members as the registered agent and use the business’s physical address as the registered agent’s address.
If you’re driving your LLC from your Home, however, you may not wish to have your home address listed on public record as the address of your registered agent.
If this is the case, you should appoint a third-party individual, such as your attorney or a company that provides registered agent services, as your registered agent.
Make Your Home Business Legal
So you’ve gone through the advantages and the disadvantages, and you’ve decided running your LLC from your Home is your best option right now. One of the biggest mistakes people make is to assume they can just start an LLC in their Home without doing anything more.
Here are some of the things you need to check in order to ensure you’re meeting all the legal requirements of a home-based business:
- Check your lease. If you’re renting your home, you need to check your lease to make sure operating a home-based business doesn’t violate its terms.
- Check local laws. Your local planning office will be able to tell you if there are any restrictions placed on home-based businesses in your area. Common restrictions on home-based businesses include restrictions on the number of people who visit your business, the number of employees who may work in your business, and the use of signage.
- Check business licensing requirements. Like any other business, when you form an LLC home-based business, you must apply for any business licenses and permits required to operate within your state and also your local area.
Running your LLC out of your home can be a good alternative for the business start-up. Your business plan may call for you to eventually move your business off-site to regular business premises, but in the beginning, a home-based business may be the most viable and cost-effective option.
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