Here in the United States you can get a Federal income tax deduction for having a home office.
With so many entrepreneurs and small businesses operating out of home offices (estimated from 10 million to 20 million businesses), the home office deduction could be significant.
I say “could be” significant because, if you’re like me, you don’t take a home office deduction.
Part of the reason is the complexity in the tax rule. The home office deduction is needlessly complex. You have to calculate square footage, for heaven’s sake. Apparently, this deduction is underutilized, and for once the IRS agrees (I’m not kidding!).
Well, the good news is, bills have been introduced in both the Senate and House of Representatives to simplify the home office deduction rules. Representative Charles Gonzalez (D-TX) and Senator Olympia Snowe (R-ME) introduced companion legislation in both houses of Congress, called the Home Office Tax Deduction Simplification and Improvement Act.
The Act will create an optional standard deduction for small business owners in lieu of the square footage calculation. Also, there is a nod to the way small businesses operate today over the Internet, with two key changes according to the National Small Business Association:
“First, to reflect an economy in which many business owners conduct business through the Internet or over the phone, the legislation would allow the home office deduction to be taken if the taxpayer uses the home to meet or deal with clients regardless of whether the clients are physically present. Second, the bill would allow for de minimis use of business space for personal activities so that taxpayers would not lose their ability to claim the deduction if they make a personal call or pay a bill online.”
The Small Business Administration Office of Advocacy applauded the moves by both legislators, noting:
“… tax compliance is 67 percent more burdensome for the smallest businesses compared to their larger competitors. Tax complexity, combined with the fact that 53 percent of America’s small businesses are home-based, prompted Advocacy’s support ….”
I also applaud this legislation. If small businesses are to thrive, particularly during a down economy, we need less regulation, less paperwork, less tax, less government. All of those add expense and make it harder to operate a business. Each burden may seem like a small thing by itself … but keep piling them on and soon you have a mountain of small things.
Unfortunately we’ve had more more more of taxes, government and regulation in recent years, from both political parties. It’s good to see things moving in the right direction, even if it’s just one thing like simplifying a tax deduction.
For details, please see Representative Gonzalez press release and Senator Snowe press release.