There are many tempting reasons to operate your crafts business out of your home. It’s convenient and economical, there’s no studio rent, and best of all, no commuting. And did we mention the potential tax deduction? Under IRS rules, you may be able to deduct part of your rent from your income taxes.
If you own your home, you may be able to take a depreciation deduction. You may also be eligible to deduct a portion of your total utility, home repair and maintenance, property tax and house insurance costs, based on the percentage of your residence you use for business purposes. As long as your business is small, quiet and doesn’t create traffic or parking problems or violate local zoning rules, operating in your home is usually legal. But before setting up a home studio, review the laws that restrict a person’s right to operate a business from home.
In most areas, zoning and building officials don’t actively search for violations. Hundreds of thousands of home-based businesses exist in violation of zoning laws but go undetected by local officials. The majority of home-based businesses that run into trouble do so when a neighbor complains—often because of noise or parking problems, or even because of an unfounded fear that the business is doing something illegal—for example, a neighbor smells chemical solvents or soldering and thinks illegal drugs are being manufactured. Your best approach is to explain your business activities to your neighbors and make sure that your activities are not worrying or inconveniencing them.
Read your local ordinance. If you’d like to determine the zoning rules that apply to your home, get a copy of your local ordinance from your city or county clerk’s office, the city attorney’s office or your public library. Zoning ordinances are worded in different ways to limit business activities in residential areas. Some are extremely vague, allowing “customary home-based occupations.” Others allow homeowners to use their houses for a broad—but, unfortunately, not very specific—list of business purposes (for example, “professions and domestic occupations, crafts or services”). Still others contain a detailed list of approved occupations, such as “law, dentistry, medicine, music lessons, photography, cabinet making.” If you read your ordinance and still aren’t sure whether your business is okay, you may be inclined to ask zoning or planning officials for the last word. But until you figure out what the rules and politics of your locality are, it may be best to do this without identifying and calling attention to yourself.
Most commonly, zoning rules limit your use of on-street parking, prohibit outside signs, limit car and truck traffic and restrict the number of employees who can work at your house on a regular basis (some prohibit employees altogether). In addition, some zoning ordinances limit the percentage of your home’s floor space that can be devoted to the business. Again, you’ll need to study your local ordinance carefully to see how these rules will affect you.
Do you want to fight? In many cities and counties, if a planning or zoning board rejects your business, you can appeal—usually to the city council or county board of supervisors. This can be an uphill battle, but it is likely to be less so if you have the support of all affected neighbors.
Leases, CC&Rs and Other Contractual Limitations
If you live in a subdivision, condo or planned unit development that required you to agree to special rules when you moved in—typically called Covenants, Conditions and Restrictions (CC&Rs)—these will govern aspects of property use. CC&Rs pertaining to home-based businesses are often significantly stricter than those found in city ordinances. Your legal right to set up a home studio may also be affected by your property and lease agreements. If you rent your home or apartment, your written lease may prohibit you from using the premises for business purposes. Your only means of resolving this is for you and your landlord to amend the lease.
Frequent use of your band saw will likely result in zoning investigations and may violate local municipal noise ordinances. Before operating noisy machinery, check your local noise ordinance. For information on noise ordinance violations throughout the nation, check out the Noise Pollution Clearinghouse (www.nonoise.org).
Insuring Your Home Studio/Office
Don’t rely on your homeowner’s or renter’s insurance policy to cover your home-based crafts business. These policies often exclude or strictly limit coverage for business equipment and injuries to business visitors. For example, if your inventory is stolen, your home studio is destroyed in a fire or a client trips and falls on your steps, you may not be covered.
Avoid surprises. Sit down with your insurance agent and disclose your planned business operation. You’ll find that it’s relatively inexpensive to add business coverage to your homeowner’s policy, and it’s a tax-deductible expense. Some insurance companies provide special cost-effective policies designed to protect your home and home-based business.