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Will Congress Simplify the Home Office Deduction?


One of the most baffling tax tasks many entrepreneurs face is claiming the home-office deduction. It involves calculating how much of the residence is used for exclusively for business, how much of the year it is used, and then deducting a percentage of expenses based on that. The instructions are 35 pages long. Lots of self-employed home-based workers who qualify don’t claim home-office deductions because the process is so complicated. Many also consider it an audit flag because of the potential for people falsely claiming home offices (though tax pros say that’s not the case).

Fixing this would save millions of home-based business owners time and money. At least six bills pending in Congress would simplify this. They would give home-based business owners the option to take a standard home office deduction of $1,500 or some figure to be set by the Treasury. (If taxpayers think they deserve a bigger deduction, they’d still have the option of calculating it the old way.)

Lawmakers, both Republicans and Democrats, introduced four similar bills last year, but they went nowhere. Like the tax self-employed workers pay on health care, this is an issue that affects a lot of small business owners with relatively little collective lobbying power.

The change is at the top of the tax reform recommendations recently published by the SBA’s Office of Advocacy. The latest efforts to simplify the home office deduction were introduced in the last month, accompanied by press releases from lawmakers. The change would make tax time easier for the growing number of people working out of their homes, particularly many who have lost their jobs in this recession. Let’s see if Congress follows through.


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