Tips for working from home

As a self-employed person you'll have plenty of important decisions to make before you set up shop, not the least of which is deciding where the ‘shop' should be. And unless it's absolutely essential to operate from a commercial premises, it might make sense to run the business from home.

Lots of people do it. According to the Australian Bureau of Statistics, around 725,000 Australians work from home, and of these, more than two thirds are owner-managers – which is just the way most of them like it.

Advantages of working from home

The most obvious advantages are cost and simplicity. Running your business from home saves you paying rent on an office or workshop and frees you from the serious obligations of entering into a long term commercial lease – which you'll be very grateful for if the business flounders, as unfortunately, some do.

There’s also the advantage of more flexible working conditions, and being able to better juggle family obligations. More than a quarter of all women working from home nominate this as their main reason for doing so. In addition, for all concerned, working from home means there’s no more commuting, no more office politics, and no further need to say, put on a suit every morning.

Overcoming difficulties when working from home

But working from home is not all plain sailing. Without the discipline enforced by having to front up daily to a job in an office, shop or factory somewhere else, with the boss never far away, maintaining momentum and motivation in your own home-based business can prove challenging.

An effective way of dealing with this is to have a daily plan of action worked out in advance, which, in the event something new doesn’t arise, you try to stick to. This encourages you to get up and get going, and head in a direction that some strategic thought has gone into. And while a naturally high level of self-motivation is a great characteristic for anyone thinking of self-employment, perhaps the greatest motivator of all is knowing that if you slack off or don't work, you don't get paid!

What about the kids

Parents with children at home face a particular set of challenges when running a home-based business. This situation calls for a degree of flexibility from everyone in the family when, for example, business deadlines have to be met. Having a physically separate space for your home office is also very important, not only for increased productivity, but also for clearly delineating work and family life. When you emerge from the office at the end of the day, and close the door behind you, it signals to the family that business is over, and that you're ‘home from work'.

Small business tax

Another important aspect of working from home is the way it impacts upon your tax, providing both pluses and minuses. The good news is that you can claim a proportion of household expenses such as mortgage/rent, home insurance, electricity, rates and maintenance as tax deductions – because part of your home is now your ‘place of business'.  These expenses must be apportioned according to the amount of floor space your home office occupies relative to the overall floor space of the home. So, if your home office/workspace occupies 15% of your home’s overall floor space, 15% of eligible household expenses can be claimed.

For the tax office to recognise such claims, your home office or workshop must fit within its guidelines, which are that it be:

Set aside from the remainder of the home exclusively as a place of business,
clearly identifiable as a place of business and,
not readily suitable or adaptable for use for private or domestic purposes.

On the downside, working from home can make your property subject to capital gains tax further down the track when you go to sell. Again, the amount of capital gains tax you may be up for is calculated on what proportion of your home was dedicated to carrying out your business, and for how long the business was conducted there. This capital gains tax issue requires careful consideration as our home is normally a tax-free asset – and is a matter well worth discussing with your accountant.

On balance, where it is possible to conduct your business from home, in most circumstances it makes sense to at least start there. It's certainly cheaper than setting up an office or shop elsewhere and, so long as you are not too distracted by other things going on in the house, it can be fun – and profitable.