Simplification of Home Office Tax Deduction
On Tuesday, January 5, 2013, the Department of Treasury announced that starting in the 2013 tax year, a new simplified deduction calculation would be available for those with a home office, used regularly and exclusively for business, resulting in a $1,500 standard deduction. Based on $5 per square foot calculation, that would cap the allowable space to 300 square feet.
For well over a decade, the National Association for the Self-Employed (NASE) has implored the U.S. Department of Treasury, the Small Business Administration, and Congress, to address the complex nature of the Home Office Deduction. The cumbersome process for calculating the deduction, involving both direct and indirect expenses, deterred nearly half of home-based business from completing the IRS Form 8829.
Over the years, the NASE has advocated for a standard $1,500 deduction that would allow for the nearly 9 million home-based businesses to easily take the Home Office Deduction without error. Not surprisingly the IRS simplification offers just that, a standard $1,500 deduction based on a square-footage calculation.
NASE Legislative Efforts on Home Office Deduction:
- (2008) Introduction of H.R. 6214, Home Office Deduction Simplification Act of 2008, in the 110th Congress;
- (2008) Testimony by Scott Scribner to the House Committee on Small Business Subcommittee on Regulations, Health Care and Trade, on burdensome regulation, including the Home Office Deduction;
- (2009) Introduction of H.R. 3615, The Home Office Deduction Simplification Act, in the 111th Congress;
- (2009) Introduction of S. 1754, The Home Office Deduction Simplification Act, in the 111th Congress;
- (2010) Support of S. Amendment #4430 to H.R. 5297, Small Business Jobs Act of 2010, which added the Home Office Deduction Simplification to H.R. 5297;
- (2011) Introduction of H.R. 1827, Home Office Deduction Simplification Act of 2011, in the 112th Congress.
The NASE also worked with the SBA Office of Advocacy to nominate the Home Office Deduction as part of their Regulatory Review and Reform (r3) initiative in 2008 and 2009. The SBA Office of Advocacy consistently selected the home office deduction as one of the top 10 regulations needing reform.
Additional advocacy efforts included meetings with officials at the U.S. Department of Treasury, IRS, and the Small Business Administration, over the course of the years to request administrative action to simplify the deduction.
How the Home Office Deduction Will Change?
The NASE estimates that nearly half of the 9 million home-based businesses do not elect to complete the IRS Form 8829 (Standard Deduction for Expenses for Business Use of Your Home) due to the complex nature of the instructions.
- One page long, with 43 lines;
- The words “see instructions” appears 17 times;
- There are four pages of instructions;
- Part III must be completed before Part II can be completed.
New Form (example; not IRS document)
When Does the New Simplified Option to the Home Office Deduction Kick In?
The new deduction will be eligible starting in the 2013 tax year (i.e. when you file in 2014) and will potentially impact roughly 18 million self-employed Schedule C filers. The eligibility requirements will remain the same: use of your home-office space regularly and exclusively for business.
For NASE members, if you have any questions regarding the new option to the home office deduction, please contact NASE National Tax Advisor Keith Hall via our “Ask the Experts” membership benefit.
Download the Fact Sheet.