Federal Legislative Issues

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. We support the creation of a standard deduction option within the range of $1,200 to $1,750. Home-based entrepreneurs qualifying for the deduction could choose between selection the simple, standard deduction or itemizing if they feel they would receive a larger tax benefit.

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. 

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:

The NASE is thrilled to lend support to legislation introduced in the 112th Congress by Congressmen Kurt Schrader (D-Ore.) and Ron Kind (D-Wis.) which would simplify taxes for millions of small-business owners. The Home Office Deduction Simplification Act, HR. 1827, would allow home-based businesses to take a standard $1,500 deduction for home office expenses.

 

The NASE strongly supports legislation that would provide for a standard home office deduction as it is a critical tax benefit for the nation’s home-based entrepreneurs, and will continue to work with lawmakers to see such legislation passed.