Legal Issues Involving SOHO’s

Many people are starting their SOHO businesses without having the proper legal structure in place which can come back to haunt them in the long run.

Most business owners that operate out of their home forget that they are a viable business entity and might need insurance to cover property and liability concerning their business. Most owners don’t take into consideration damages that could happen to equipment or data if disasters, such as fire, water or theft happens.

You may need to update your insurance policy to include a rider that will cover business operations so that if anything happens, the business is covered, especially when it comes to data processing and storing a customer’s data at your home. If you have confidential files, you might want to create the extra security methods to store those files so that if something happens, the insurance will cover you and not hold you negligent in a court of law.

Another issue is tax deductions. The Internal Revenue Service (IRS) has changed several laws regarding tax deductions for a business which makes it harder to get tax deductions. To claim a business deduction on your taxes, you must designate a part of your home exclusively as your main location of business. The IRS changes this rule frequently so you should go to the site to get current information.
There are exceptions under the “exclusive rule” use. If you are storing inventory in your place of business, the IRS ruling is that space is a perpetual and common use for the business.

To take advantage of the business deductions, you must be in business between the years of two to five years. Within that time frame, you can deduct your common expenses such as office supplies, journals (professionals) and a car. The best bet is to check the latest IRS laws because they change from year to year.

The current IRS laws states that if you use your home for business purposes, the organization will look at it as an annexed piece of property. This means that you have to have separate filing systems for business and personal items.

Tax issues can be complex to understand at times regarding SOHO’s. For more information, you can contact your local SBA office or go to the Internal Revenue Web-site at .

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