Don't assume your home-based business is exempt from taxes and labor laws -- even if you hire your teenager.

Working at home sounds ideal: Roll out of bed and in a few minutes you're at work.

Indeed, there are many advantages to working from home, including saving time and commuting costs, gaining the flexibility to combine work with family responsibilities, and the opportunity to be highly profitable (home-based businesses typically show a 36 percent rate of return compared with 21 percent for non-home-based businesses, due to lower expenses). But there are also a number of legal issues to address so you can stay out of trouble. Here are a key few:

Determine whether local zoning law allows you to run your business activity from your home in a residential area. While there's usually no problem for a freelancer or Web designer, there can be limitations on a car detailer parking customer vehicles on the front lawn.

Also check on community restrictions if you live in a planned community or cooperative apartment. Covenants, conditions, and restrictions created by a homeowner's association or co-op board can be the last word on whether you can run a business from your home.

Business Formation
Decide how to set up your business from a legal perspective. You may dress casual in your home office, but you don't necessarily want to run your business in a casual manner. Decide, for example, whether to incorporate or form a limited liability company, even if you're the only owner -- a step that gives your business structure and credibility and you gain personal liability protection for your home and other personal assets in case of lawsuits or creditor claims.

Where appropriate, obtain trademark protection for your company name. Learn whether you need this legal protection and how to obtain it through the U.S. Patent and Trademark Office (

Running a business from home doesn't exempt you from any federal, state, or local tax responsibilities. Whether your business involves providing a service, selling online, or some other activity, be sure to pay required income taxes. Obtain a federal employer identification number (EIN) for your home-based activity (or check whether it can use your personal Social Security number for this purpose) by viewing IRS online information.

In addition to income taxes, make sure to collect and remit sales taxes under the law in your area. Of course, working from your residence means you may be eligible to claim a home office deduction and cut your taxes.

A trade or profession, a contracting business, and many other activities require permits or licenses to operate legally -- home-based businesses are not exempt. Check on requirements in your area through (

Hiring help
If you need a hand in running your business, don't think legal requirements stop at your front door. Check with your state labor department on employer obligations, such as carrying workers compensation for employees.

If you want to hire your teenager, follow child labor laws, which limit the number of hours children can work and the type of activities they can and cannot do (

Double check zoning laws. While you may be permitted to work from home, there may be limits on hiring non-household members. Learn about federal tax obligations for employers in IRS Circular E, which is Publication 15 (