Small Business Regulatory Review and Reform Initiative
Regulatory Review and Reform (r3) Top 10 Rules, 2008
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| Simplify the Home Office Business Deduction |
| Agency |
Internal Revenue Service
(IRS), U.S. Department of the Treasury |
| Submitter |
National Association for the Self-Employed (NASE) and Eric Blackledge,
Blackledge Furniture |
| Nominated |
February 28, 2008 |
| Description |
Internal Revenue Code
section 280A(c)(1) permits a deduction for a home office if it is the
principal place of business of the taxpayer, used exclusively for
business, or used to meet with patients, clients, or customers. However,
current IRS regulations do not provide a concise definition of the
elements of section 280A(c)(1). In the absence of final regulations
describing how to qualify for and calculate the deduction, IRS policies
and case law have made it more complicated for a home-based business
owner to learn how to obtain the exemption. |
| Small entities affected |
Home-based businesses constitute 53 percent of all small businesses. |
| Regulatory burden |
The requirements to qualify for and calculate the deduction are
confusing for taxpayers and do not account for changes in technology
that affect the way business is conducted. Consequently, many at-home
workers do not take advantage of the home office business deduction. |
| Proposed burden reduction |
The IRS should revise the rules to permit a standard deduction for
home-based businesses. Similar to the Form 1040 standard deduction, the
home office business deduction should be optional. Taxpayers who wish to
claim the home office deduction could choose to continue to follow the
current home office deduction rules or they could choose the new
standard deduction. |
| Small entity benefits |
Home-based business owners would have a simplified, less burdensome way
of taking advantage of the home office business deduction. |
| Status |
On March 14, 2008, the IRS informed Advocacy that this issue has been assigned to IRS attorneys for review. On July 30, 2008, the Deputy Commissioner of the IRS’s Small Business/Self-Employed Division testified on this issue before the House Small Business Subcommittee on Regulations, Healthcare, and Trade.
The IRS is continuing to review this issue, including exploring opportunities to simplify the rules and make Form 8829, Expenses for Business Use of Your Home, easier to use.
On February 5, 2009, Advocacy hosted a roundtable on important tax issues, including the Home Office Business Deduction. A representative from the Internal Revenue Service’s Taxpayer Advocate Service made a presentation demonstrating the current complexity of the deduction and the need to simplify it.
|
| Advocacy contact |
Dillon Taylor, advocacy@sba.gov |
