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. A large percentage of these businesses are women-owned and minority-owned.

To qualify for a home office deduction, a business owner must use an area of your home regularly and exclusively for business purposes and must meet any of these conditions:

• Use the space as your principal place of business, and the business generates revenue. Under recent changes in the law, you can meet this qualification even if you only perform administrative and managerial functions there and if you 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 your business.

To claim the home office deduction, you complete and file Form 8829 and base your deductions on the square footage used for business compared to the total square footage in your house.
Many home-based business owners prepare their taxes own. 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:
The NASE will work to get legislation introduced in the 109th Congress that will simplify and expand the home office deduction. We also will support legislation that would allow home-based businesses the option of selecting a standard deduction.

In the 108th Congress, no legislation was introduced dealing with the home office deduction. However, the Small Business Administration held a series of roundtables discussing home-based business, the issues they face and their contribution to the national economy.

In the 107th Congress, the Home Office Tax Simplification Act (H.R. 5220) was introduced by Rep. Mac Collins and Rep. Tom Delay. The bill would have created a standard $2,500 deduction that home-based business owners could elect to take. The companion bill (S.945) was introduced in the Senate by Sen. Christopher Bond.