Law Proposed to Ease Home Office Tax Deduction

Proposed legislation would make it easier for small businesses to qualify for the home office tax deduction.

The bipartisan bill, introduced in both the House and Senate, would direct the Treasury Secretary to create an optional, easy-to-use standard deduction to encourage greater use of the home office tax incentive. In addition to instituting an optional home office tax deduction, the “Home Office Tax Deduction Simplification and Improvement Act of 2009” would require the IRS to streamline its reporting requirements to clearly identify the portion of the deduction devoted to real estate taxes, mortgage interest and depreciation in order to further reduce the burden on the taxpayer.

Under current law, a home office tax deduction can be claimed by qualified individuals who use a portion of their home as a principal place of business or as a space to meet with patients or clients. Recent research from the U.S. Small Business Administration indicates that roughly 53 percent of America’s small businesses are home-based, but few home businesses actually take advantage of the tax incentive because of the complex, rigid reporting requirements.

The bill, introduced by Senators Olympia J. Snowe, R-Maine, and Kent Conrad, D-N.D., along with Rep. Charles A. Gonzalez, D-Texas, would also update the Tax Code to ease the burden of proof in claiming the deduction. Specifically, it would allow the home office deduction to be taken if taxpayers use part of their home to meet or deal with clients regardless of whether the clients are physically present. The bill would also allow for de minimis use of business space for personal activities so that taxpayers would not lose the ability to claim the deduction if they make a personal call or pay a bill online. 

“With a morass of paperwork attributable to the home office deduction, the time-consuming process of navigating the tangled web of rules and regulations makes it unsurprising that so many small-business owners forego the home office deduction,” said Snowe, who is ranking member of the Senate Committee on Small Business and Entrepreneurship. “By simplifying this vital tax incentive, our bill will give small firms much-needed relief from burdensome tax rules, which, in turn, will allow them to focus their efforts on developing new, cutting-edge 21st century products and services and creating new jobs.”

The Snowe-Conrad-Gonzalez initiative has already attracted strong support from the National Federation of Independent Business, the IRS National Taxpayer Advocate Service, and the SBA’s Office of Advocacy.

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