Last Updated on January 20, 2024 by Work In My Pajamas

For many people, owning their own business is something they have always dreamed about. With today’s technology, owning a home business is much easier than it has ever been—but too many people leap into a home business without protecting themselves legally. This can lead to major problems in the future and could cause the business to fail due to legal ramifications that can develop. If you plan to start a business at home, keep the following things in mind to ensure that everything is 100% legal:

Pick a Fitting Business Structure

Be sure to talk to a tax professional before you determine the legal structure of your business. Most home businesses begin as a sole proprietorship, but there are tax advantages to making your company an LLC or S-Corporation. Clients may also feel your company is more legitimate if it has a level of incorporation. An LLC, or limited liability corporation offers protection for your personal assets but does not require significant paperwork, while an S-Corporation requires more paperwork but qualifies you to receive a salary as an owner. You will also need to get an Employer Identification Number with the IRS for an LLC or S-Corporation, but it is also recommended for a sole proprietorship as you do not want to give out your social security number to all your clients.

Obtain the Right Permits or Licenses

Every locality has licensing and permit requirements. In addition to checking state regulations regarding your home-based business, be sure to contact your county and city offices as well to see if there are additional permit and licensing requirements. For example, a catering company may be required to undergo periodic kitchen inspections by both local and state authorities. In addition, be sure to check local zoning laws to be sure your home is located in an area that allows commercial entities. Some localities, especially those located in subdivisions, do not allow businesses so it is important to be sure that you can actually open a home-based business where you live.

Pick the Proper Name

Not only do you want to be sure that your business name fits with your branding, you need to be sure that there will be no trademark infringement. According to business law experts in Houston, you can search for trademarks at the United States Patent and Trademark Office website to be sure the name you choose is not already trademarked by another company. If you do decide to incorporate your business, check with your state filing office to be sure another company has not already chosen the name. If you find that the business name you want is already being used by another corporation, you still may be able to use it if you offer completely different goods or services. However, most experts recommend choosing a different name in order to avoid confusion.

Pay Your Taxes

As a sole proprietor, you will be responsible for self-employment taxes which can be significant at the end of each year. Corporations may help reduce those taxes but the paperwork requirements may be significant. The best option is to discuss your new business with a qualified tax professional who can advise you on quarterly tax payments that will reduce your tax burden at the end of the year or other methods that will help you avoid a large tax bill when you file. Because you are not working for an outside employer, Social Security and Medicare tax is paid, in full, by you. When you work for someone else, they pay half of that tax. For this reason, self-employment tax can be fairly significant. In addition to self-employment tax, you will be responsible for your federal and state income tax.

If you are considering starting a home-based business, these tips can help you keep your business legal. It is always recommended that anyone starting a business seek legal advice, but there is quite a bit of information available at government websites like the IRS and the Small Business Administration that can also help guide you in creating your company. No matter where you get your information, be sure to consult professionals and create a checklist so you can ensure that every area of your home business is 100% legal.