Major Metropolitan cities, such as Miami, FL, have seen office rental rates skyrocket over the last two years. Recently, Miami reached a record high asking rental rate at $54.62 PSF in Q4 of 2023. This rapid growth has left business owners looking for alternatives to the traditional office. As a result of improvements in remote technology, a popular option for many entrepreneurs has been to operate their business from their home.
Running a business from home can provide owners with more benefits than just financial savings. Operating from home can offer increased schedule flexibility and considerable mental health benefits. However, a home-based business comes with unique and sophisticated legal puzzles. Here, we will be covering a broad range of legal considerations every business owner should take into account when operating from home.
Incorporation and Licensing
One of the first big forks in the road every entrepreneur may face is deciding how they will incorporate their business. Choosing between an LLC, a Partnership, a Corporation, or a Sole Proprietorship is not always easy. Each option comes with its own unique advantages as well as drawbacks that need to be considered. Having an experienced business attorney handling your incorporation will provide business owners with a seamless process and comfort knowing their assets are properly protected.
Furthermore, certain businesses still require licenses or permits, even if operated from home. Determining whether your business needs a specific license or permit can be complex. Additionally, filing and maintaining these licenses can be tedious. Hiring an attorney to ensure your business remains compliant can help avoid significant issues down the road.
Zoning Regulations
Depending on the nature of the business, owners may be subject to local zoning regulations and restrictions. For example, if your home-based business expects consistent foot traffic for customers, this may go against local ordinances. Furthermore, local laws may not be an owner’s only concern. Homeowners associations (HOA) agreements may impose their own restrictions. Navigating zoning regulations and HOA agreements can be daunting, making it essential to consult with an attorney to assist with compliance.
Taxation
In recent years tax codes have evolved to improve the practicability of home-based offices. Although proper incorporation can resolve many taxation issues, the lines between what and where to declare can be difficult to discern. For example, if operating a psychotherapy clinic from a living room, a new couch for clients to sit on would be a reasonable purchase. Would such a transaction be deductible as a business expense? How would depreciation of the asset be calculated? Current tax laws, such as IRS Publication 587, provide insight into what may or may not be deductible.
Despite readily available resources, there is no substitute for a qualified professional, especially in such a rapidly evolving legal field.
Insurance
Having the proper coverage for when the unexpected strikes is crucial for the longevity of any business. However, a typical homeowners insurance plan may not be sufficient for those looking to operate a business from home. If a business expects client traffic in and out of the home, accidents or incidents that occur as a result of these visits may not be covered by homeowners insurance.
Depending on the type of business, there are different insurance plans that owners should consider. Commercial General Liability (CGL) can cover home offices for medical and legal costs arising from personal injury, third-party bodily injury, advertising injury, and property damage. Commercial Property Insurance can cover businesses that store valuable inventory or equipment in their homes. Lastly, if the business has employees, it should consider Workers’ Compensation coverage for its employee’s work-related injuries, even if those employees work remotely.
This list is not exhaustive, and it is important to contact your current insurance provider to see what your homeowner’s policy may already cover. It may also be helpful to consult a business attorney to determine the best coverages for your specific business and contract needs.
In conclusion, businesses looking to operate from home may face several unexpected and complex legal considerations. From tedious tax details to property law, business owners may find themselves playing hopscotch jumping through boxes only to come up dizzy and confused.
If you have any questions about moving to, or starting, a home-based business please feel free to reach out to any of our attorneys or contact us through our website to schedule a free consultation.
