Why Congress hasn't simplified the home office tax deduction

Only half of Americans who work from home and qualify for a home-office tax deduction actually claim it, says National Association for the Self Employed President & CEO Kristie Arslan. According to a survey conducted by the non-partisan organization, many self employed people forfeit the tax break because it's complicated to calculate and they fear that taking it will make them the target of an IRS audit.

That's why, on behalf of her constituents, Arslan is imploring Congress and the Obama administration to add a standard $1,500 home-office deduction option to the U.S. tax code. Arslan calls her proposal the "Baffle Rule," as in "fix the baffling tax code." She says it would be a practical benefit to more Americans than President Obama’s so-called “Buffett Rule,” which seeks to ensure that the country's wealthiest individuals such as Warren Buffett don’t pay lower tax rates on their investment income than average earners pay on their wages.

Arslan says an estimated 9 million Americans work out of their homes, and the Small Business Administration estimates that 52 percent of all small businesses are home-based. In a commentary published this week by the Huffington Post, Arslan wrote, “Tax fairness is a top priority for the National Association for the Self-Employed, but we're much more interested in tax laws that impact the 22 million self-employed Americans who aren't household names but who create a whole lot more jobs than Mr. Buffett. In honor of the millions of Americans who are struggling this week to figure out the home office deduction and other baffling tax laws, we're calling on Congress and the president to change all tax laws that are so baffling that taxpayers don't take advantage of them.”

A taxpayer determines his or her home-office deduction by calculating the square-foot measurement of the home office as a ratio of the entire home, the portion of time the room has been dedicated fully to business use, and a percentage of household mortgage or rent and utility payments. Arslan says a standard option could ensure that millions of people don't miss out on the deduction they are entitled to. Those who are eligible for greater than a $1,500 deduction would still have the choice to itemize their deductions.

Arslan has been advocating for several years for an amendment to the tax code that would simplify the home office deduction. And Home Office Deduction Simplification Acts have been introduced in recent years by both Republicans and Democrats. But Arslan says there’s a simple reason Congress has not made such a change a priority: Making it easy for nine million self-employed Americans to take a $1,500 home-office deduction would ensure a $13.5 billion hit to federal tax revenue.

 “This is not a hotly contested issue. There’s already a law that could be tweaked to be better. Someone who was self-employed could see savings on their tax bill this year,” Arslan says. “The easier you make a deduction, the more people will take it.” Which seems to be precisely why Congress isn’t interested.

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