According to the Internal Revenue Service, only 2.7 million of the nearly 20 million Schedule C filers in tax year 2003 took a deduction for home office expenses, despite the fact that some 8.4 million Americans indicated they had one or more rooms used only for business.
Congressman John M. McHugh (R- N.Y.)

Rent-to-own company owners who work out of an office in their homes could save an additional $1,500 on their taxes next year. Legislation introduced this week by Congressman John M. McHugh (R- N.Y.) would make it easier for home businesses to deduct office expenses by offering a $1,500 standard deduction to eligible taxpayers. The Home Office Deduction Simplification Act (H.R. 6214) would also require that the amount be indexed for inflation.

"The tax code currently allows a deduction for home office expenses for self-employed taxpayers and employees who must use their home for business purposes at their employer's request," said Rep. McHugh. "However, according to the Internal Revenue Service's Office of the Taxpayer Advocate, only 2.7 million of the nearly 20 million Schedule C filers in tax year 2003 took a deduction for home office expenses, despite the fact that some 8.4 million Americans indicated they had one or more rooms used only for business."

Many business owners cite complexity of the criteria to qualify as too cumbersome to follow; others also cite a fear being audited as their reason to avoid the deduction. The National Association for the Self Employed (NASE) recently conducted an online poll revealing that three in five business owners who had never utilized the current home office deduction said the option of a standard deduction would encourage them to take it.

"Too many sole proprietors have shied away from taking the home office deduction despite being eligible for it," said Kristie Darien, executive director of the NASE legislative office. "The option of a standard deduction would address all the barriers to utilizing the home office deduction and allow qualifying home-based businesses to employ this important tax benefit."

The option of a $1,500 standard deduction would not preclude taxpayers currently qualifying for the home office deduction from continuing to itemize their expenses should they choose. The Home Office Deduction Simplification Act would simply offer a taxpayer-friendly way to take the deduction. Additionally, if passed by Congress, it would significantly minimize the paperwork and time spent on tax preparation for entrepreneurs managing their business out of their home.