Working from home is a great way to earn money doing what you love, setting your own hours and making your own business decisions. However, unlike working for a company, you are the only one responsible for taking the proper legal steps.
If you aren’t careful, you could end up in hot water with local, state, or even federal government agencies! It’s important that you understand all of the legal do’s and don’ts when working from home, so read on to find out a bit more about some of your legal requirements…
As a self-employed person, you are obligated to file an annual tax return, as well as pay the proper quarterly taxes.
In addition to your regular income taxes, you will pay a Self-Employment tax (SE tax). An SE tax is basically your contribution to the Medicare and Social Security programs, and it’s similar to the withholdings that most companies take from your paycheck.
To determine if you are eligible to pay the SE tax, subtract your business expenses from your business income. If you earned more than you spent, you must pay taxes on the net income.
If you earn more than $400 from your at-home business, you MUST file an income tax return. You may be able to make a few deductions from your taxes for "home office" expenses.
Find out everything you need to know on the IRS website…
One of the drawbacks of being self-employed is that you have no legal team to back you up. This makes it much harder for you to sue or file complaints should a client fail to pay their bill or make a payment. For this reason, it’s VITAL that you sign contracts before accepting any job. It’s the only way you can ensure that you are paid for the work you are doing or the service you are providing.
Make sure your contracts contain the following clauses:
- Pricing/rates on the service/product you are providing
- The method of payment or invoicing
- A single ’point of contact’--someone with whom you communicate about anything important
- Copyrights for any projects you are creating or building
- Scope of the project
- Deadline/term of contract
- Kill fee for any products/services you are providing
Having a contract in place will ensure that you are legally protected, and will allow you to take legal action should the client fail to keep their end of the deal.
Nearly every business needs a license, but not all at-home businesses require licensing. Here are a few things to consider:
- Is your current home/apartment zoned for at-home businesses? Are there legal restrictions that would prevent you from running a business from your home?
- What type of business do you run? Some businesses do require licenses--retail, food, contracting and construction, and cosmetic and hair shops among them. Creative businesses (graphic design, web design, writing, art, etc.) may not need a license.
If you plan on turning your home-based business into a small or medium business one day, it may be worth looking into getting proper licensing for your company.
Consult with your local City Hall to find out if you need a license.
Or check out the U.S. Small Business Administration website to find out if you need a license for your state.
This is just the beginning--there’s so much more you need to know--but you’re off to a good start of navigating the world of at-home business.