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Friday, Sep 29, 2023




Question: My husband and I are thinking about starting up a management consulting business. Since we spend most of our time in our clients’ offices, we thought it would save overhead to base our business at home. Are there any other advantages that we should consider?

Answer: You’re in luck! The tax rules are changing for businesses like yours where the main office is in your home and you conduct a portion of your work outside of your office.

The Taxpayer Relief Act of 1997 (which was signed into law last August) will expand deductions for maintaining a home office. This could change the way many professionals do business; not just consultants, but accountants, plumbers, decorators, health care workers and real estate agents who are currently not eligible for the deduction.

To fully appreciate the impact of this change, the Small Business Administration projects that this new law could save small-business owners who qualify about $2.3 billion over the next 10 years.

However, until this law takes effect, you are not eligible for a deduction unless all of your business is performed in your home. In your case, you would have to do your research and analysis, as well as set up meetings and interviews with your clients, at your home. (If you owned a television repair service, you would have to fix the TVs at your home and not at the customer’s home.)

Commencing Jan. 1, 1999, the new tax rule broadens the definition of “principal place of business.” Here’s how it pans out:

The business owner (or taxpayer) who uses his home office for both administrative and management functions may conduct minimal paperwork at another location, but no substantial administration and management activities may be conducted outside of the home office.

This change represents true recognition by Congress that businesses in general, and small-business owners in particular, need someplace to store files, open mail, and conduct general operational functions. Tax specialists are also claiming that business owners who qualify for the deduction can also deduct the cost of traveling between the client’s office and the home office.

As always, meticulous record keeping is critical in case of an IRS audit. So I strongly recommend that you and your husband visit with a tax accountant or attorney to make sure you meet all the necessary requirements to take advantage of this new tax rule.

Q: I am a single mother who has run an architecture and interior design business for several years. We currently have about 34 full-time employees, most of them working mothers, and would very much like to offer a comprehensive insurance plan. What do you recommend?

A: I can fully appreciate this question. After working for a large, multinational investment banking firm for years, it’s hard to fathom not having full insurance coverage. But insurance companies are now offering small firms a benefit that previously was limited to large corporations. It includes group automobile and property insurance that can be paid by employees through payroll deductions.

During the last year, insurance companies have offered group plans to companies with as few as 25 employees. This coverage can include insurance on automobiles, homes, boats and even personal property, like jewelry.

The good news for you as the employer is that adding auto and property insurance as a benefit costs you nothing. Your employees have to sign up on their own volition and pay the premiums by payroll deduction. As an incentive, the insurance company will offer group plans with premium discounts of up to 20 percent.

Obviously this will increase your paperwork, but it will be time well spent to increase the benefit package offered to your employees.

Q: We run a software company and are preparing for our big trade show at Comdex in Las Vegas this fall. These shows are like a three-ring circus and companies much larger than ours are spending millions of dollars on exhibits and marketing hype. How can we stand out from the noise?

A: Great question! And one that many of us running small businesses must be asking ourselves at least once each year. To be seen and heard amid the hype is simple: Focus on your message and deliver it with a clear explanation.

If you think you’re confused at a trade show, think about how customers must feel! Your job is to help them sort through the confusion with clear explanations of how your product or service will fill their needs. Here are some tips on doing just that:

? Assume nothing. Don’t take for granted that the customer understands your latest technology and how it can help their business. Adjust your presentation for the layman, explaining your product in the most concise and clear terms.

? Be prepared to lose a customer. That might sound counterproductive, but if a customer is a poor fit for your product or service, it will only hurt your business in the long term.

? Keep the promise and don’t make promises you can’t keep. In your business, your product (software) will likely become obsolete after a given amount of time. Give your customers realistic expectations of the product’s “shelf life” and how you plan to stay at the forefront of new solutions.

Most business people are too busy for a lot of hype; what your customers really want are results.

Lorraine Spurge is a personal finance advisor, author and business news commentator. She can be reached at lspurge@spurgeink.com.

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