Work from Home – Legal Structure for your Home Business

April 15, 2009

Let’s assume you want to start your own home business to be able to work from home and get out of the rat race working for the man. If you decide to start your own home-based business you need to consider several things in regards to the legal structure of your endeavors. You want to a) protect your personal assets and b) you want to take advantage of using any possible tax deduction that eventually applies to your new situation. If you just want to do “Do Business As” or DBA you will leave many tax deductions on the table as you cannot use them legally. Sole Proprietorship allows you to deduct some items, but certainly not as many as you could use when running your busienss as a LLC (Limited Liability Company) or Corporation.

When I decided to start my own business I did not want to leave money on the table. I also wanted to protect my personal assets from any business liability. After some quick research I found the LLC to be the best option for me. Taxes are easy to be filed as I can just piggyback on my personal income tax return by using a plain and simple Schedule C like a sole proprietor. However, on the business side the LLC allows me to treat everything like a corporation (well, almost everything, but you will need to talk to a tax accountant anyway when things get more complicated). I can write off all my business expenses with no issues. The LLC protects my personal assets as long as I keep things separated. So, make sure to open a business checking account and to use a dedicated credit card that only carries business related charges.

Starting your own company – be it LLC or Corporation is not expensive. You can do it yourself or hire someone to do it. Sometimes hiring out this work makes perfect sense to avoid any issues. Some states allow you to do this over the Internet, while others require you to make a trip into town for that. While I went for a trip to town to register my own business, friends of mine used services like “MyNewCompany.com” to start their business. These guys take care of registering your business for you + offer several additional services that really save you time and avoid that a mistake cripples your business registration process.

Should you register your work from home business? In my opinion the only valid answer is “YES”. Not only offers it protection, but it also provides many financial benefits. I also think that once you have a registered business in your name, you will treat your work at home efforts with more respect and more professionalism which in return might lead to more business success. Working from home is fun and I really enjoy it.

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