The federal tax code currently provides small businesses operating out of the home with a tax deduction. However, many small business owners fail to claim the deduction because the filing process is confusing and burdensome. The IRS instruction manual for the current home-based small business tax deduction is 32 pages long. Nationally, only 2.7 million of the eight million eligible taxpayers actually bother to claim the deduction, according to the National Small Business Association.
“Many enterprising Hoosiers have started their own home-based businesses to make ends meet during the economic downturn,” Bayh said. “However, like much of the current tax code, the federal tax deduction available to these small business owners is too complicated and burdensome, which winds up costing them an important tax benefit. This legislation offers accessible tax relief to Hoosier entrepreneurs who are utilizing their skill sets across a range of fields to support their families, such as operating a landscaping business, providing child care services or starting their own online business from home.”
The Simplified Home Office Deduction Act of 2009 creates a new, standard tax deduction of $1,500 or the annual gross income of the home-based small business, whichever sum is less. Small business owners who like the current rules can continue to use them.
The proposed change would make it significantly easier for 180,000 Hoosier small business owners and eight million home-based entrepreneurs nationwide to take advantage of the intended tax benefit. Nearly half of all U.S. small businesses are home-based and contribute a combined $314 billion to the economy, according to the Small Business Administration.
Bayh introduced the legislation with Senators Barbara Boxer (D-CA), Jeff Merkley (D-OR) and Joe Lieberman (ID-CT). The bill is supported by the U.S. Chamber of Commerce, the National Small Business Association, the National Federation of Independent Business and the National Association for the Self-Employed.