1. Law For Small Business (Management 349) Home-Based Businesses (Chapter 14) Professor Charles H. Smith Fall 2011

2. Restrictions on Location of Home- Based Business Two common potential restrictions; if either applies, then home-based business will not be permitted ◦ Local zoning statutes – is home-based business permitted and, if so, to what extent? ◦ Private land use restrictions (generally HOA CC&R’s but can be lease or deed) – may operate to restrict or even prohibit home- based business even if permitted by local zoning statutes.

3. Local Zoning Laws What are the local zoning laws? Different cities have slightly different standards; examples include ◦ Fullerton – FMC § 15.17.030(M); see eleven of the basic Home Occupation Requirements at http://www.ci.fullerton.ca.us/depts/admin_serv/bus_reg/ home_occupation.asp http://www.ci.fullerton.ca.us/depts/admin_serv/bus_reg/ home_occupation.asp ◦ Orange – OMC § 17.14.050, subd. I; Long Beach – LBMC § 21.51.235. ◦ The overriding themes are keeping the home-based business quiet, unobtrusive and small. How to find out what the local zoning laws are? ◦ Should be in the city’s code, which can generally be found on the city’s website or other Internet source. How to deal with local zoning officials? ◦ Have the spirit of compliance and teamwork (see prior PowerPoint presentation re Licenses and Permits).

4. Private Land Use Restrictions Usual private land use restrictions in form of HOA CC&R’s, which are part of or referenced in deed to real property. Lease may also restrict/prohibit home-based businesses. Even a deed to land (with no HOA) may limit the use of the land though this is rare.

5. Insurance Beware – your homeowner’s policy very likely will not cover business-related losses ◦ Homeowner’s policy intended to cover losses related to “personal life” only. Also, if business is separate legal entity (e.g., corporation, LLC, partnership), no coverage under homeowner’s policy even if business- related losses covered ◦ Avoid this issue by having business named as an additional insured. To avoid problems, ask agent for CGL policy or other specific coverage for the business.

6. Qualifying for Tax Deduction re Home- Based Business for Business Owner According to http://www.irs.gov/pub/irs-pdf/p587.pdf (pages 2-6; note that this is a 36-page document so do not print the whole thing), to qualify for deduction of expenses related to the business use of your home, you must use part of your homehttp://www.irs.gov/pub/irs-pdf/p587.pdf ◦ Exclusively and regularly as your principal place of business, ◦ Exclusively and regularly as a place where you meet clients, etc. in normal course of your trade or business, ◦ In the case of a separate structure which is not attached to your home, in connection with your trade or business, ◦ On a regular basis for certain storage use, ◦ For rental use, or ◦ As a daycare facility.

7. Additional Tests for Tax Deductions re Home-Based Business for Employee According to the same website (pages 2-3), must meet the previous requirements plus ◦ Business use must be for your employer’s convenience and ◦ You do not rent any part of your home to your employer and use the rented portion to perform services as an employee.

8. Calculating the Home-Based Business Deduction Use “any reasonable method” but two common methods (same website, pages 6-7) are ◦ Divide the area used for business by the total area of your home. ◦ If rooms all about the same size – divide the number of rooms used for business by the total number of rooms in your home.