Despite the many difficulties from the coronavirus pandemic, there were 1.5 million applications for new businesses in the U.S. in the third quarter of 2020, almost twice that of the third quarter of 2019.
Data from the U.S. Census Bureau shows that there were 492,000 applications for new business in January 2021, almost a third more than the figures in January 2020.
The new entrepreneurs may include those who lost their jobs because of the pandemic. Many of these new businesses are home-based small enterprises.
If you are thinking of building a startup, here are some ideas you can consider, including tips on how to reduce your expenses to maximize your profits.
Home-based Small Business Ideas
If you lost your job, see how you can pivot and use your skills as an individual contractor.
A writer can be an online content provider, ghostwriter, copywriter, editor, proofreader, or transcriptionist.
An accountant can sell contractual services to small or medium-sized businesses. Your skills are especially in demand during tax season.
If you worked in online marketing or advertising, your skills are much needed as businesses need to shift online to survive.
If you worked in information technology (IT), you can do simple web building and maintenance or offer more advanced services depending on your capabilities.
A graphic designer can provide logos and other graphic design needs for websites and online marketing.
If you cannot transform your previous job into a home-based online business, you can look for other opportunities.
You can, for instance, sell other people’s products online through drop shipping. You need to widely advertise on social media, and you get a commission whenever you make a sale from your end.
Lower Overhead and Identify Tax Deductibles
You immediately lower your overhead costs by eliminating rent if your small business is home-based.
If you can start a business by yourself, with no employees, you will also save on having to pay salaries. Only hire services as you need them. For instance, hiring a web building and maintenance service is more affordable than hiring IT personnel.
If you can do your online marketing on social media by yourself, you save on advertising and marketing costs.
You can also increase profit by lowering your taxes through tax deductibles.
You can use the simplified home office tax deduction method to claim $5 for every square foot of your home office space. Take note that this space does not encompass your entire home but only the area you use exclusively and regularly for your business. The size will be the actual square footage of your home office or 300 square feet, whichever is lesser. With this method, you can claim a maximum deduction of $1,500.
However, you must check if you can have a higher deduction using the regular tax deduction method. For instance, in both methods, you cannot claim a tax deduction that is more than your income. In the simplified method, you cannot carry over that excess to next year’s taxes. In the regular method, you can.
In the regular method, any repair in the home office area is fully deductible. For instance, painting the walls and fixing the windows in that area will be deductible.
If the expense covers the entire house, only a percentage proportional to your business usage will be deductible. Hence, only a portion of your utility bill is tax-deductible, including heat and electricity payments. A portion of maintenance and repair costs for heating and air conditioning equipment is deductible. The same applies to services for the entire house, such as security services, cleaning services, and garbage collection.
Any repairs done in a portion of the house not used for business will not be deductible. Maintenance of appliances that are not directly connected to your business, such as your oven, for instance, is not covered.
However, if your home business involves baking, your oven maintenance and repair will be deductible. If your home business involves recycling clothes and requires laundry, your washer and dryer repair and maintenance, as well as dryer vent cleaning services, for instance, will be deductible.
Renters can deduct a percentage of rent. Homeowners can deduct a percentage of mortgage interest payments and real estate taxes. A proportional percentage of homeowner’s insurance or renter’s insurance is also deductible.
If you need to purchase business equipment and even office furniture, you can deduct the full cost outright through Section 179. This includes computers, the oven for a baking business, the washer and dryer for a clothes recycling business, and even a vehicle that is exclusively and regularly used for business. You can split the deductions between years if they exceed your income.
Grow Your Business
With the courage of a true entrepreneur amid adversity, you can start and grow your home-based small business during the Covid-19 pandemic.
Work smart and lower your costs while maximizing your profits. This is a good rule to follow even as you expand.
Starting a business in hard times may be difficult, but it provides a strong foundation for progress.