Working at home

By Gerri Willis, CNN/Money contributing columnist


After this morning's dismal jobs report you may be considering starting a business from home. You'll be joining an estimated 11 million Americans who own or operate full or part-time businesses from the comfort of their homes.

But whether you spend a couple of hours a day or 5 days a week on your at home business, there are several risks and rewards associated with it.

Thinking of starting a business at home or are questioning your current one? Here are today's five tips:
 
1. Get the tax break.

Most people know that having a home office can give you a big tax writeoff -- but qualifying for it may be more difficult than you think.

The first hurdle? It must be clear that you are using the space regularly and exclusively for business. In theory, the space cannot be used for any personal use. That means no guest rooms doubling as offices; or corners of the kitchen turned over to bookkeeping. Your home office is deductible if it is your principal place of business.

For example, a freelance writer that earns their salary from their home office desk qualifies for the tax break. Taking work home occasionally from the office won't cut it. But someone who may do their work in the field, but takes care of the paperwork for the job at home, does qualify. You may also qualify if you regularly use your home to meet with clients.

Once you figure out whether you qualify for a deduction, you'll want to get a hold of form 8829. This is the form used to claim the deduction. To compute your deduction, first determine the proportion of your home's square footage that is dedicated to the office. You'll be allowed to deduct that same proportion of your mortgage interest, depreciation, utilities and repairs from you income. And renters get to deduct their business from their rental expenses.

Also, it can't hurt to take photographs of your home office space. These can be used to back up your case if you are audited.
 
2. Don't forget about insurance.

A recent survey conducted by the Independent Insurance Agents & Brokers of America (IIABA) and International Communications Research has found that nearly 60 percent of America 's home-based businesses do not have insurance coverage. When asked about their lack of insurance, nearly 40 percent of owners say they thought they were protected by some other type of coverage, almost 30 percent say their businesses are too small to insure and nearly 20 percent simply could not give a reason for not having insurance.

Naturally, this could pose a big problem if you have an accident in the home related to your business or if your PC suddenly crashes and can't be revived. The bad news? Homeowners policies are not intended to cover in-home businesses. To get coverage you'll have three options.

See if you are able to extend your coverage by adding an "endorsement" to your existing homeowners policy. This endorsement can be for equipment coverage or liability coverage or both. For example, a typical homeowners policy provides only $2,500 coverage for business equipment. For as little as $25 you can raise the policy limits to $5,000 from $2,500. This might be a good option if you are running a part-time business out of your home.

The other option is to check with your insurance company if it offers a combined homeowners and business policy program. This is called an in-home business policy/program.

The final option is a Businessowners Policy also known as a BOP. This provides both property and liability coverage. One final word: if you are using your automobile for business out of the home, make sure your auto coverage will protect you from accidents that could occur when you are on the job. For more information, log onto the Insurance Information Institute's Web site at iii.org or TrustedChoice.com.
 
3. Save money.

If you are starting a home-based business you'll probably want to try to save money on everything from your phone bill to electricity.

The folks over at Billsaver.com say one way to save on the phone bill is to sign up for a long-distance plan that charges on a billing increment of 6 seconds. How many times have you made a call and ended up leaving a message for 15 seconds, but are charged for a full minute? This will cut back on those charges. So, for every call you make unless you talk right on the minute you are going to be saving increments of a minute.

Also, pick up a low priced long-distance carrier with great state-to-state rates. Bundled service is another option. This combines local and unlimited long distance in one plan.

Technology can also help. There is a new, affordable technology called Voice Over IP which can save you big dollars on your current phone bill. VOIP essentially sends your telephone call over the Internet instead of using phone lines. Check out the service in your area. Instant messaging on the computer can also cut down on phone calls.

As for Internet service, shop around. People typically go with high speed service and you can find deals for around $30 or $40 a month. See if you can get a deal on phone service and an Internet service combo. In fact, every major ISP has a small business offering. And it is becoming easier and easier to find a cheap scanner, fax machine, and copier all in one. For more saving options check out Billsaver.com.
 
4. Be tiny but tough.

Smaller companies may find it difficult to compete with the giants, but there is technology that is leveling the playing field.

PC Magazine says accounting software for small businesses has matured over the past five years. PC Magazine takes a look at several software choices ranging in price from $99 to nearly $500. These include MYOB Plus 2004, Peachtree Premium Accounting 2004, QuickBooks Premier 2004, and Simply Accounting 2004 PRO. For detailed information check out PC Magazine.com.

These programs provide bookkeeping capabilities, can track projects, and keep inventory in order. Each also offers setup tools that walk you through the process of creating the framework to match your books. Some even go beyond basic bookkeeping and offer additional features such as online banking.

And why not hire a virtual assistant to help with the load? Assistu.com offers virtual assistants. These assistants can help with several areas of your business, including order processing, database management, Internet marketing, even making travel arrangements for you. How much do these assistants cost? Depending on the virtual assistant you might pay-as-you-go, giving him or her only the amount of work you actually have during any week or month. Or you might have him or her on retainer, buying a certain amount of his/her time each month for a pre-set (and usually lower) hourly rate.
 
5. Use all available resources.

When starting a business you'll find that everyone and their mother will want to give you advice on what to do. Even retailers like Office Depot offer reams of advice on their Web site.

But the best place to start is SBA.gov which is the Web site for the Small Business Administration. Here you'll find answers to your questions about small businesses, including the startup basics. It also offers a training network.

Also check out Score.org. This is the site for counselors to America's small businesses. And, Networksolutions.com provides information on establishing your business to financing it.

Gerri Willis is the personal finance editor for CNN Business News. Willis also is co-host of CNNfn's The FlipSide, weekdays from 11 a.m. to 12:30 p.m. (ET). E-mail comments to 5tips@cnnfn.com.

Jemarion Jones
Media Relations
Independent Insurance Agents & Brokers of America
800-221-7917 ext. 5445 (703-706-5445 direct)
jemarion.jones@iiaba.net
www.iiaa.org