Street legal. (maintaining a home office)
by Rosalind Resnick, Susie Archer
People who run home offices typically spend half their time worrying about getting business in the door--and the other half worrying that they've taken on too much. With all the attention paid to sales and marketing, the legal aspects of setting up and maintaining a home office are often overlooked. And yet there are many legal questions that ought to give you pause: What if you need a contract drawn up? Which legal software gives you the biggest bang for the buck? And, most basic of all, does your community even permit you to work from home?
Legal questions often defy easy answers, but that doesn't mean that you should rush out and hire a lawyer. Your PC, a modem, and a couple of self-help law books may be what you need to cut through all but the thorniest of legal problems. Here's a beginner's guide to Home Office Law 101.
The first legal issue many home office users must confront is whether they can legally open a home office at all. Some cities and states are very strict while others take a more tolerant view of people running businesses in residential areas. Many communities don't allow businesses to operate from a home but make exceptions for professionals such as doctors, lawyers, writers, and artists. Illegally operating a home office can result in a court order to cease all business activity, fines, and even jail. The reality, however, is that in most places home business bans are unenforced. (That doesn't mean you should break the law.)
The best way to avod zoning hassles is to maintain good relationships with your neighbors, find out what kinds of businesses you can and can't run from home, and obtain all necessary permits and variances. To find out which home businesses are permitted, simply go to city hall and leaf through the local zoning ordinances or ask a city or county zoning official for help.
If it turns out that your business is not allowed, you can always petition the local zoning or planning board for a variance. You should try to show that what you are doing is similar to a permitted occupation, that enforcing the ordinance would strip you of your livelihood, and that your business would not disrupt the neighborhood. It's not a bad idea to take a few neighbors with you--as long as they're on your side. Getting a building permit may require another trip to city hall.
Thinking about turning your spare bedroom, garage, or toolshed into a cozy home office? If you're planning to do more than slap on a fresh coat of paint, you may need a building permit. You may also need to obtain an occupational license, register your business, gain permission to collect sales tax, get an employer's tax ID number from the Internal Revenue Service, and file articles of incorporation.
Many people who work at home don't realize that their homeowner's policy may not fully insure computer equipment used for business.
Depending on the replacement value of your home office equipment, you may want to buy an additional policy from a specialty insurer such as Safeware, the Insurance Agency via CompuServe (type GO MALL) or by calling (800) 848-3469.
If you're like most home business owners and your company consists of you alone or you and your spouse, you probably don't need to incorporate. As a sole proprietor, you and the business are one and the same. What the business earns is yours to keep; what the business borrows is money you owe.
As your business grows, you may want to consider a more formal company structure. But beware: A partnership can burden you with somebody else's debts. Incorporating your business may lend it an air of permanence but can also saddle you with unwanted paperwork and legal bills.
It's tempting to write off home office expenses on your 1040, but unless you want to risk an audit, you've got to know the rules. The IRS uses this two-part test: Is your home office used exclusively and regularly for business? And if it is, is your home office either your principal place of work or a place where you meet with customers or clients in the normal course of business?
If the answer to both questions is Yes, your tax savings may be substantial. But remember that you can only deduct the portion of your expenses directly attributable to your home office.
It's wise to comparison-shop when looking for legal assistance. Depending on the lawyer's expertise, reputation, and the size and location of his or her law firm, rates can range from $50 to over $200 per hour. Savvy legal consumers typically shop around--visiting, or at least calling, three or four lawyers and interviewing them about fees, strategy, and past experience in handling their particular type of case. Once you've decided which lawyer to hire, be sure to get a written contract. Run, don't walk, from any lawyer who promises to win your case or tries to bowl you over with legal mumbo jumbo.
Prepaid Legal Plans
One way to keep your legal bills low is to join a prepaid legal plan that offers discounts on lawyers' hourly rates plus unlimited consultations by phone or letter. LawPhone Advisory Communication Systems, a 50-state network of private attorneys, charges $60 for a three-month membership plus a $15-a-month continuation fee or $180 for an entire year. Members get free telephone consultations with a plan attorney; letters written on their behalf; reviews of contracts, leases, and other legal documents; and a 25-percent break on legal fees.
For those home office professionals who want to brave the legal jungle alone, there's plenty of software available. Only a handful of programs are capable of generating documents other than wills. It's Legal (Parsons Technology), Personal Lawyer (BLOC Publishing), and Hyatt Legal Services Home Lawyer (MECA Ventures) are general-purpose legal programs that spit out commonly used legal documents.
A lot of law-related information can be gleaned online at minimal cost. America Online and PC-Link offer information in their Small Business Resource area on topics such as "Obtaining Good Legal Advice and Controlling Legal Costs" and "Keeping Your Business Out of Legal Hot Water." CompuServe offers law-related information in its Legal (LAWSIG) and Work at Home (WORK) forums. Forum members who log on to LAWSIG can browse through such libraries as Computer Law and Software and Lawyer-to-Lawyer, an information exchange for attorneys.
Since online searches can be expensive, it's a good idea to invest in a few self-help legal guides. Three we recommend are listed in the List of Products and Services box.