it is still a valuable investment that should be protected through business insurance. Although your residence may already be insured for fire and other damage, never rely totally on your homeowner’s policy to cover your home business. “Most homeowner’s and rental policies will exclude business activity, so you would have to look for what is called an `in-home business policy,’” says Mary Smith, president of M.S. Technical Services Inc. in Gaithersburg, Maryland.
Smith, 39, says most companies writing this type of policy will include personal business property, general liability and loss of income. However, some home-based businesses need special coverage. For example, a food manufacturer should have product liability insurance to cover if someone gets hurt using a product. Home-based businesses that have several employees need to provide workers’ compensation coverage. You may even need additional automobile insurance if your present policy doesn’t cover injury while running business errands.
When looking for coverage, consult an agent specializing in home-based businesses. Have your agent conduct a risk analysis of your property to determine the value of equipment and furnishings. When negotiating a policy, be sure that coverage on all business-related materials is for the full cost of each item–not the depreciated value. Depending on your carrier and the type of business, in-home business policy premiums can cost $150 and up per year.
For more information on how to insure your home-based business, contact: The Insurance Information Institute, 110 Williams St., 24th Floor, New York, NY 10038; 212-669-9206.
GETTING YOUR FINANCIAL HOUSE IN ORDER
When Uncle Sam comes calling for his piece of your home business, you want to be ready. Set up a detailed record-keeping system and keep track of all business-related expenses. Such computer software programs as Quicken offer easy-to-follow formats for separating business and personal expenses. Never mix the two. Also set up a separate business bank account.
When filing your tax return, keep in mind there are several home expenses that are tax deductible: office supplies, professional and trade memberships/dues, travel, insurance premiums, local and long distance telephone calls, maintenance and repair of office computers, and employee wages and benefits.
Home-based business owners can also claim a “home office” deduction in which they deduct part of their rent or take a depreciation deduction based on how the business is used in the home. About 1.6 million home- based business owners claim a home office deduction each year. According to the IRS, a house, apartment, mobile home, boat or condominium can qualify. However, to claim this deduction, your home office must be: (1) your principal place of business; (2) a separate and distinguishable space in your home; and (3) regularly and exclusively used for business. The language regarding this deduction is not simple, so contact your local IRS office or your accountant for complete definitions.
YOU’RE NEVER HOME ALONE
Operating a home business does not have to be a lonely experience. There are various programs that offer support and a office and those who just take the office home. You can talk with trained representatives about setting