If you're trying to get a new business off the ground, the hardest part is getting into the black.
Its first few years are all about survival, where every dollar counts as you try to get stable and turn a profit. The good news is that you can use your home to help you get through that tough early period, whether you rent or own it.
Even better, this applies to those of us who have turned ourselves into a business - as in, we are self-employed or contracting.
The first step is figuring out how much of your home is being used to support your business. Do you have a home office? A workshop where you make things for the business? Is the garage used for storing your supplies? Work out how many square feet of your home are supporting your business, and what that is as a percentage of your overall home. That percentage will be the key for what you can claim back for your insurance, rates, rent and even your power.
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If you own your home, you can claim back that percentage from the interest you pay on the mortgage - but not on its principal, the amount you borrowed in the first place. Still, every bit helps.
That's the simple part. The next step is the bit where you might need to involve an accountant. You can also claim depreciation on the things you use for your business, like a computer or office furniture. But you're going to have to work out some sums for that and, frankly, it sounds a bit like hard work
If, for example, you have valuable tools, consider engaging an accountant to help you work it out. They do say that a good accountant will save you more money than they cost you. The trick is finding a good one.
Even if you decide to stick to the simple part you can do yourself, there's a little bit of fine print to know about before you celebrate your new get-rich-quick scheme.
These expenses are things you can ‘claim back' - as in, when it's tax time, you need proof of these expenses. Keep every single receipt and bill.
The way you claim back can also catch some people unawares. You'll pay less tax because you've needed to pay these expenses - but you don't really end up with money in your hand.
Using your home for your business also has insurance implications. You're going to need to call your insurer and tell them what's happening, because otherwise they could decide normal household insurance doesn't cover your home any more.
You don't want to try and fudge it, then find out you're not covered after the worst has happened.
Still, it's a good option for lots of people to use their home to their advantage to keep their costs low. Particularly if you're starting the business as a side hustle, meaning you keep your day job and its pay while your business gets started. There's the possibility of making this situation very profitable.
- Frances Cook is the host of the personal finance podcast Cooking the Books. She is not a financial adviser, and all information is general in nature. For individual advice, see a financial adviser.
