Home Office Deduction Simplification Act

Madam Speaker, yesterday, March 16, 2009, the Gentleman from Oregon, Mr. Schrader, and I introduced legislation, H.R. 1509, the Home Office Deduction Simplification Act. This legislation, which was H.R. 6214 in the 110th Congress, is designed to reduce the complexity of the tax code and provide Americans with the ability to elect to take a standard deduction in the amount of $1,500 for home office expenses.

In 1976, Congress enacted Section 280A of the Internal Revenue Code, which as amended in 1997, provides the limited circumstances in which an individual or an S corporation may take a deduction for expenses related to an office in the home. Generally, deductions are limited to those parts of a home that are exclusively used on a regular basis as a principal place of business or to meet with patients, clients, or customers.

As a result of technological advancements and other significant changes in our economy over the past 40 years, many more small businesses are now able to effectively operate out of the home. Not surprisingly, there has been a growth in the use of home offices; according to the Internal Revenue Service (IRS), the home office deduction was taken on 3.3 million self-employed business returns in tax year 2006, an increase of 700,000 from tax year 2002.

Nonetheless, the IRS reports that ``a substantial number of taxpayers with home office expenses are not claiming them on tax returns.'' According to the IRS, the deduction might be underutilized because ``understanding and complying with the rules for deducting home office expenses can be difficult for small business and self-employed taxpayers.'' This is borne out by an IRS analysis that found almost half of the taxpayers claiming a home office deduction made errors.

Small businesses are unquestionably the backbone of our nation's economy. In fact,

some 27 million American small businesses represent more than 99 percent of all employers, provide 51% of private sector employment and 45% of its payroll, and produce approximately 50% of the nation's private, nonfarm GDP. I could not overstate the importance of the nearly 66,000 small businesses I have the privilege of representing to the economy of Northern and Central New York.

The importance of this measure to small businesses is evident by the fact that it is supported by a coalition that includes the Alliance of Visual Artists, American Homeowners Grassroots Alliance, Associated Builders & Contractors (ABC), Association for Enterprise Opportunity (AEO), National Association for the Self-Employed (NASE), National Federation of Independent Business (NFIB), National Small Business Association (NSBA), Professional Photographers of America, Small Business & Entrepreneurship Council, Small Business Legislative Council (SBLC), and Women Impacting Public Policy (WIPP). The Home Office Deduction Simplification Act is also supported by the SBA Office of Advocacy.

Given the importance of small businesses to our economy, it is imperative that Congress act when presented with opportunities to reduce or remove costly regulatory burdens. The current home office deduction presents such an opportunity, which Congress can reduce, by enacting the Home Office Deduction Simplification Act. Accordingly, I ask my colleagues to join with Mr. Schrader and me to enact this important measure.

In my home State of Oregon, 98 percent of our businesses are small businesses. In fact, small businesses employ 57 percent of Oregon's workforce. During Small Business Appreciation Week, I want to commend all of the small business owners in my home State and across the country who drive the economy and keep the dream of American entrepreneurship alive.

It is with that in mind that I speak about an issue that all small business owners face: the complexity of our Tax Code. Whether we're talking about dollars spent or time lost, tax complexity is an enormous drain for small businesses. With 3.7 million words, 70,000 pages, individuals and companies spend close to $265 billion just to fill out their taxes. Sadly, our small business entrepreneurs pay the majority of that.

That's why I introduced H.R. 1509, the Home Office Deduction Simplification Act that would provide small businesses with a simple $1,500 home office deduction to claim a credit that very few use today.

During Small Business Appreciation Week, I encourage all Members to consider ways to aid small businesses.