May 29, 1997

Make Small Business Week Count: Modernize the Home Office Deduction, the NASE Asks Congress

Washington, D.C. -- To mark this year's Small Business Week (June 2-6, 1997), the National Association for the Self-Employed is asking Congress to modernize the home office deduction in this year's budget reconciliation bill.

"Many small businesses today are run out of someone's spare room," said NASE President Bennie L. Thayer. "Having a home-based business can allow a parent to earn an income while caring for children, or gives downsized workers a chance to start over from home. Reduced commuting costs mean less traffic, pollution and road deterioration. But instead of encouraging home offices, the IRS has made it increasingly difficult to deduct the costs of home offices from income taxes. This year, as a sign of support for the men and women who balance work and home in this way, the NASE is asking Congress to modernize the home office deduction to allow these hard-working individuals to keep a little more of their earned income."

Today, to claim a deduction for a home office, the customers of the business must physically visit the home office and the income from the business must be generated within the office -- two tests that no other type of business must pass. These criteria:

• unfairly discriminate against sales representatives, plumbers, real estate professionals and countless others who must visit their customers to conduct their businesses;
• ignore zoning regulations and security concerns which cause many people to avoid having customers in their house;
• minimize the importance of the administrative and record-keeping side of a business, including the need to keep up with IRS-mandated paperwork; and
• create a "double-standard" in which home-based businesses -- which are making a profit and paying taxes like other businesses -- must meet requirements demanded of no other businesses.

"Even those businesses that can claim the deduction face harassment from the IRS," Thayer added. "Because so many business owners taking the home office deduction are subject to aggressive IRS audits, many accountants advise their clients not to take it even if they are entitled. That's why, out of the estimated 14 million home-based businesses, only about 1.5 million take the deduction. Essentially, the IRS is telling businesses where to locate.

"Congress is now developing a $135 billion package of tax cuts," Thayer continued. "Modernizing the home office deduction would cost less than one percent of this. It is one of the few current tax reduction proposals that would directly benefit very small businesses and taxpayers in the $20,000 to $50,000 range. Plus, it would help reduce costs associated with child care, pollution, energy and infrastructure usage.

"Let's send a signal this year that Small Business Week is really meaningful," Thayer concluded. "Let's modernize the home office deduction and give the smallest of small businesses something to really celebrate."

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