SBA Cites Home Office Deduction for Revision

The U.S. Small Business Administration’s Office of Advocacy has conducted a Regulatory Reviewand Reform Initiative (referred to as R3) designed to identify and address existing federal regulations that should be revised because they are ineffective, duplicative, or out of date.

SBA recently announced its list of regulations for review and revision.  At the request of ASHI and several other stakeholders representing small business, SBA cited the IRS treatment ofthe home office deduction as a regulation that should be reviewed and revised.  

ASHI was invited by SBA to submit recommendations. Many ASHI members operate from home offices and should be eligible to make use of the home office deduction. 

The rules for the home office deduction are not clear, are too complicated and do not give the degree of “safe harbor” assurance of compliance that small business owners want in dealing with IRS. 

IRS has viewed the home office deduction with wariness, seeing it a vehicle for abuse and tax evasion. However, SBA has found that 53% of all small businesses in the U.S. are legitimate home-based businesses, a compelling rationale for IRS to view the issue in a different light and develop simpler, more reliable rules to use the home office deduction. 

Home-based small businesses should not face discrimination in the tax code. If it is generally accepted that legitimate office expenses should be excluded from business income, then legitimate home-based small businesses should have a simple, reliable means to deduct home office expenses.    

The SBA R3 program is intended to help small businesses address the cumulative Federal regulatory burden, which is now estimated to exceed $1.1trillion.  The SBA recommendation is the strongest statement yet that the home office deduction needs to be improved. It will increase pressure on the IRS and on Capitol Hill to address the issue.