Home Office Deduction Simplification
The NASE Position:
Increasingly, entrepreneurs are utilizing their home as a primary place of business. Many home-based business owners do not make use of the home office deduction due to the complexity of the criteria they must meet. The NASE believes that the home office deduction must be simplified and expanded to allow home-based businesses to easily utilize the deduction.
Background:
According to research commissioned by the SBA Office of Advocacy, home-based businesses represent 52 percent of all firms and provide 10 percent of the total revenue of the economy. The Congressional Budget Office estimates that nine million of the 17.3 million small businesses in the United States are home-based, and 55 percent are operated by women. Many home businesses are started to provide a secondary income, as evidenced by the fact that sixty-one percent of businesses earning less than $5,000 are home-based.
To qualify for a home office tax deduction, a business owner must use an area of their home regularly and exclusively for business purposes and must meet these conditions:
Use the space as their principal place of business, for a company that generates revenue. Under recent changes in the law, business owners could meet this qualification even if they only perform administrative and managerial functions there and if they have no other fixed principal place of business. Use the space to meet with clients, patients or customers. Use the area exclusively to store inventory or product samples for their business.
To claim the home office tax deduction, business owners complete and file Form 8829. The deduction is based on the square footage used for business compared to the total square footage in the house.
Many home-based business owners prepare their own taxes. Thus, the complexity and paperwork burden of this deduction forces many home-based business owners, who could qualify, to not employ this benefit.
Legislative Activity:
In the 110th Congress, the Home Office Deduction Simplification Act (H.R. 6214) introduced by Rep. John McHugh (R-NY) would provide for a $1,500 standard deduction option for those qualifying for the home office deduction. The NASE strongly supports this legislation which will greatly assist in simplifying tax preparation for our nation’s home-based entrepreneurs and facilitate their use of the home office deduction, a critical tax benefit.
In addition, House Small Business Committee Chairwoman Nydia Velazquez (D-NY) introduced the Small Business Tax Fairness and Simplification Act of 2007 (H.R. 46), a comprehensive bill aimed at simplifying and equalizing tax treatment for small businesses. It includes a provision that would support those who choose to operate a home business by creating a standard home-office tax deduction. This standard deduction would replace complicated IRS regulations that prevent many home businesses from deducting legitimate expenses. Another bill with a similar provision, the Parent’s Tax Relief Act (H.R. 1421), was introduced in the House by Rep. Terry and in the Senate by Sen. Sam Brownback (R-TX) (respectively numbered H.R. 1421 and S. 816). The NASE supports both of the above bills as well.
Return to Index of Legislative Briefs
|
 |
