7 Important items to consider when running a business from home
Ever heard of work-life-balance? The unattainable dream when running your own show!
No really, it is attainable, but everyone's balance will differ.
Home-based businesses offer flexibility and are generally low-cost to run. However, running a business from home does not suit everyone.
You need to have management skills, vision for your business, and discipline if you’re going to run your business from home.
1. Office Setup:
If you operate a business from home, ideally you have a specified area set up that is dedicated solely to running your business. This makes it easier and more streamlined when it comes to calculating any expenses incurred from running your business from home. If the space is shared, then keep a logbook of the hours and space used so that you can work out an accurate percentage to be attributed to your business expenses.
Other questions to consider: Spaces such as a shed or garage used for warehousing or a workshop, how much time/space/tools is used for business activities vs personal? If you have a home office or study set up, how many hours of the week is it utilised for your business? Is it shared with any other household members or is its sole purpose to be your place of business?
2. Business Hours:
Local councils have restrictions on where and when you can conduct your business when operating from home. Please check your local council website to find out what is required.
You wouldn’t want your neighbour blaring music at 2am while preparing their customer packages before the post office opens. Thoughtfulness goes a long way. If you’ll have clients coming to your home and don’t have enough parking on your property, have a quiet word with your neighbours letting them know what you’re doing and provide them with your contact details should their driveway be blocked. This is especially important in more dense suburbs where parking can be more difficult. You never know, you might have a lovely neighbour who offers their driveway as additional parking for you.
Now, you also don’t want to be juggling home and work 24/7. You will burn out quick...and I speak from experience! Setting blocks of time for work and for home/family life will help you to be present for the task (or children or spouse or friends) at hand.
3. Privacy & Protection:
There are privacy laws that you must comply with if you are collecting and storing your customer/clients personal information. They detail how a business needs to handle personal information. The Australian Information Commissioner has a checklist (link below) you can use to see if you need to comply with the Australian privacy principles.
In the age where we live and share our lives online, we’d like to think that our favourite stores and services would be treating our information carefully and thoughtfully. So, it’s only right that you provide the same level of protection to your customer/clients.
The Checklist can be viewed here - https://www.oaic.gov.au/privacy/privacy-for-organisations/small-business/
The Privacy laws can be viewed here - https://www.oaic.gov.au/privacy/the-privacy-act
4. Insurances:
Public Liability – If you have clients come to you
Professional Indemnity – If you’re offering advice/services
Product liability – If you’re selling or producing any products
Worksafe – State based and often mandatory for business owners, especially with employees.
5. Deductions you can claim:
If you incur expenses by running a business from home, you can only claim deductions for the business portion of the expense. If you’re operating in a common area, and other family members are using the space at the same time, then you’re not really incurring any additional costs to operate your business, so you wouldn’t be able to deduct a substantial portion, as you’d need to take the other members use into account.
Occupancy Expenses – you pay rent or own your home :
Rent or Mortgage Interest
Water Rates
Land Taxes
House Insurance
Running expenses - costs associated with using your home for business:
Heating & Cooling
Lighting
Cleaning
Decline in value & cost of repairs on furniture and equipment
Phone & Internet
Because of COVID the ATO allowed the shortcut method to be applied for home office expenses from 1/3/2020 - 30/06/2021 at the rate of 80c per hour.
If you earn Personal Services Income (PSI) you might not be able to claim occupancy expenses.
6. Capital Gains Tax when using your home for Business:
Generally, if you work from home while running a business and are claiming occupancy expenses, then Capital Gains Tax (CGT) may apply when you sell your home. For more information on this, please get in contact with us, or have a look at the information provided by the ATO - https://www.ato.gov.au/General/Capital-gains-tax/Your-home-and-other-real-estate/Your-main-residence/Using-your-home-to-produce-income/.
7. Meeting clients:
When running a business from home, and setting up your space, you want to have in mind where you’d be bringing your clients in. Do they have easy access to amenities, comfortable seating away from the kids’ toys or last night’s dishes? Setting up a workspace that is 100% for your business is always optimal. Not only does it look professional, but it also gives your clients a bit of confidence knowing that you will treat them with respect and importance.
Alternatively, you can meet your clients at their premises, or at a café! Who doesn’t love an excuse to leave the house?
If opting for a café for your meetings, you may be able to deduct the cost of the coffee/beverage and a light snack or meal. Generally something you would have served at your place of businesses if it were to be receiving clients. Be sure to check with your Accountant if this deduction would be applicable to you.
If you’d like more information on any tax implications that you might incur from running a home office or are unsure of how to keep a logbook of your business usage, feel free to reach out to us. We are a team of qualified accountants and bookkeepers.