Streamlined Home Office Deduction Could Mean Extra Bread for Small Business Owners

John Arensmeyer

John Arensmeyer

Small business has been the focus of Washington’s high-profile tax debate, both prior to and following the “fiscal cliff” fracas that closed out 2012. But as noisy as the small business tax issue has been, there’s been considerably more time spent debating cuts that will help a thin sliver of taxpayers in the top brackets than hashing out solutions that will help the vast majority of entrepreneurs

Fortunately, last week the tax code was improved in a fashion that will put a very helpful tax deduction within reach of the bulk of our nation’s job creators. The Internal Revenue Services announced that a new, simpler option for calculating the home office tax deduction will be available on 2013 tax returns.

Tales of tax deductions aren’t something you normally regale friends and family with around the dinner table. But when you get down to it, what this improved deduction means is that small business owners and employees working from a qualified home office will be able to deduct up to $1,500 per year. And that’s a lot of bread.

What’s more, an estimated 52 percent of small businesses have home-based offices, according to the 2007 U.S. Census. Our own 2012 polling tells the same story. Nationally, 52 percent of the smallest businesses — those with 10 or fewer employees — are home office-based, including some with employees working remotely.

Although the deduction has been around for some time, it’s been underused. In this economy, anything that can help small businesses save cash is a good thing, which is why this is such big news. The Obama Administration made the change expressly to make it easier for small businesses to file their government paperwork, which will give them more time to do what they do best — create jobs and grow the economy. It also increases the likelihood that small business owners will claim this credit and save some money.

This new development shows there are ways to help small business owners beyond just cutting income taxes. Closing loopholes favoring big corporations is a perfect example. Our polling found 72 percent of small business owners believe it’s about time Congress puts a finger in the corporate loophole dike. A sweeping 90 percent favor removing tax breaks for moving production overseas and providing incentives for bringing it home, and 7 in 10 entrepreneurs support a proposal designed to help spur small business job creation by rewarding companies that hire more workers or increase wages by giving them a tax credit.

It’s also important to remember that small business owners are very busy people who often don’t have Human Resources departments, and they want simpler ways to deal with exactly this kind of issue. Our national polling found about three-quarters of entrepreneurs agree we should allow for one-stop electronic filing of government paperwork. Simplifying this deduction is an important step toward streamlining filing processes, and that’s something small business owners have asked for.

The bottom line is, dealing with personal tax cuts is an epic battle, as we’ve seen lately. There’s no reason Congress can’t work smarter instead of harder, and push through proposals that, like this tax deduction, will do some real good for the majority of small businesses and their employees — who, as consumers, are critical to our economy. Making the home office tax deduction easier to claim means more people are likely to take advantage of it. That can lead to more money in small business coffers and consumers’ pockets.

“Fiscal Cliff” Deal Good for Small Business, but More Needs to be Done

John Arensmeyer

John Arensmeyer

Original statement issued Jan. 1, 2013:

The small business community and the nation breathed a sigh of relief today as lawmakers reached a bi-partisan 11th hour deal to avert the “fiscal cliff,” while taking significant steps to reduce our budget deficit. However, more work must be done to put our country on a responsible path toward long-term economic growth and fiscal sustainability.

Small business owners have been very concerned about the fiscal cliff and nearly every tax and spending component surrounding it, according to scientific opinion polling Small Business Majority released in November. Specifically, the majority of small employers overwhelmingly agree that tax cuts for the middle class must be extended, but that, in light of our budget crisis and the need to target fiscal policies directly to America’s job creators, tax cuts should expire for the wealthiest 2 percent making more than $250,000 per year. We appreciate the president’s strong stand in support of this policy, but we accept the need to reach a compromise at a higher income level in order to get a deal and avert a fiscal crisis.

We also are pleased with the agreement to permanently fix the Alternative Minimum Tax and maintain other tax provisions that will keep more money in middle class taxpayers’ pockets. And, we are pleased to see that the agreement maintains renewable energy incentives, the R & E tax credit and other business tax incentives, including Section 179 depreciation, while staving off draconian across-the-board spending cuts. But, we are disappointed that a key policy that small business owners strongly supported—the extension of the temporary payroll tax cut—was not included in the final agreement. By more than a 3:1 ratio, small business owners said they are worried about employee payroll taxes going back up.

This is a necessary stop-gap measure. But, it defers important decisions about our nation’s fiscal future. We now urge Congress to come together to address other vital long-term tax policies, including corporate tax reform, and take other important action to balance the need for long-term deficit reduction with targeted policies designed to ensure that our fledgling economic recovery continues. Our elected leaders need to put the needs of the American people over politics and do what is right for the economy and the nation.