Pros and Cons to Running an LLC from Home
Starting your first company is often nerve-wracking. Whether filled with excitement or anxiety, there are many things to consider when starting your first business. The most challenging part can be coming up with the company name. Once that is determined the next step is to incorporate your business. You can do this in any state you wish, however Delaware is the most popular state to incorporate a business in. Most commonly, new entrepreneurs will register their business as a Limited Liability Company or LLC, which is often referred to as the most flexible business entity.
Here are some of the things you should consider before running your business out of your home:
Pros
Flexibility: If you spent time in the corporate world, that means you probably spent a lot of time commuting to and from work, spending 8 hours a day in an office or at a worksite, or even having to finance a special wardrobe. The top advantages of working from home is that you work on your time and can decide what works best for you in running your business.
Low Costs: When starting up a new business, budgets may be very tight. The appeal of working out of your home likely comes from you already paying rent or mortgage, for an internet connection, and can easily add a Google Voice account to your existing phone to use for business. As well as you having the space for a home office and can utilize it without additional cost to rent a commercial space or office.
Potential Tax Benefits: Under certain circumstances, you may be able to write-off certain business expenses including portions of your rent or mortgage and even utilities. However, tax deductions for home offices have specific eligibility requirements and limitations that vary based on your business structure and employment status. Consult with a qualified tax professional to understand what deductions may be available for your specific situation.
Cons
Lack of Professional Meeting Space: If your business will require meetings with clients in-person, one thing you will need to consider is logistics. Having virtual meetings is ideal when working from home (thanks in part to virtual backgrounds), but if you must meet a client, you will need to decide if you will be meeting them at their place of business, a local eatery or café, or alternative professional spaces such as coworking facilities.
Address: When you are sending out marketing materials, or need to receive correspondence, you will likely have to list your home address publicly. This could be a disadvantage to some who would like to maintain some anonymity. A good solution for this would be to have a virtual office or mail forwarding service, so you are able to use a professional mailing address and not have to use your home address. This will also deter unwelcomed visitors from showing up to your home. Also using a registered agent, you will be able to have your company represented by the agent and have all official notices, including service of process forwarded to you through their office.
Work/Life Balance: Working from home is a dream for some, but a headache for others. A benefit to having a professional office space is you can leave work at the end of the day. When your work is inside of your home, a project, a proposal, or other obligation can loom in the background. Having a separation from your workspace is key to achieving a suitable work/life balance.
Insurance and Liability Considerations: Operating a business from your home may affect your existing insurance coverage. It's important to review your homeowner's or renter's insurance policy and consider whether additional business coverage may be needed.
Other Considerations
Legal and Regulatory Requirements
Before starting your home-based business, research the legal requirements that may apply to your situation. These can include local business licensing requirements, zoning restrictions, and permit obligations that vary by location and business type. Some areas have specific regulations governing home-based businesses.
Property and Lease Restrictions
When deciding to run your business from home, you may need to consider whether or not you are able to. If you rent your home, you should check your lease to see if there are any terms that restrict commercial activity from taking place at the residence. Similarly, properties with homeowner associations may have additional restrictions through their governing documents.
Another consideration is even if you are working from home typically you are subject to any local and state compliance matters and may be required to file for Foreign Qualification and obtain business licenses and permits.
If you are considering running your business from home, it would be best to consult with a tax professional and attorney to see if the pros outweigh the cons and to understand all applicable requirements for your specific situation.
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