Small businesses are important to the American economy. (See Idea 48 - Lowering Small Business Start-up Costs). Here's another way we can help them grow and prosper.
More than 9 million small businesses are based in the home. Those businesses contribute more than $300 billion to our economy each year. And thanks to the Internet and the e-business boom, those numbers will only continue to grow.
But home-based small business owners run into a big obstacle when they fill out their tax returns. It’s called the home office deduction.
Here’s the problem. In theory, our tax code allows home-based small business owners to deduct expenses associated with running a home office. But in practice, the deduction is so tough to calculate that many small business owners decline to take it at all.
Don’t just take my word for it. The IRS's own Taxpayer Advocate reports that less than a third of eligible small business owners claim the deduction because it is "too time-consuming" and "too complex." In fact, the instruction booklet explaining the deduction is 35 pages long… even though the deduction itself occupies just one line on a Form 1040.
Here’s a simple solution. Instead of forcing small business owners to spend their time calculating the deduction, let them take a standard deduction equal either $2,500 or the annual gross income from the home-based business, whichever is less. We’ll still give small business owners a chance to calculate the deduction under the current rules if they so choose, but standardized the deduction will make it even easier to claim.
Experts predict that simplifying the deduction would put almost $3.5 billion into the pockets of home-based small business owners each year. More importantly, the change would let entrepreneurs spend less time on their taxes and more time working on the things that really matter -- creating new jobs, developing new products, and contributing to America's economic recovery.
Submit your ideas to: chad@chadmcgowan.com.
More than 9 million small businesses are based in the home. Those businesses contribute more than $300 billion to our economy each year. And thanks to the Internet and the e-business boom, those numbers will only continue to grow.
But home-based small business owners run into a big obstacle when they fill out their tax returns. It’s called the home office deduction.
Here’s the problem. In theory, our tax code allows home-based small business owners to deduct expenses associated with running a home office. But in practice, the deduction is so tough to calculate that many small business owners decline to take it at all.
Don’t just take my word for it. The IRS's own Taxpayer Advocate reports that less than a third of eligible small business owners claim the deduction because it is "too time-consuming" and "too complex." In fact, the instruction booklet explaining the deduction is 35 pages long… even though the deduction itself occupies just one line on a Form 1040.
Here’s a simple solution. Instead of forcing small business owners to spend their time calculating the deduction, let them take a standard deduction equal either $2,500 or the annual gross income from the home-based business, whichever is less. We’ll still give small business owners a chance to calculate the deduction under the current rules if they so choose, but standardized the deduction will make it even easier to claim.
Experts predict that simplifying the deduction would put almost $3.5 billion into the pockets of home-based small business owners each year. More importantly, the change would let entrepreneurs spend less time on their taxes and more time working on the things that really matter -- creating new jobs, developing new products, and contributing to America's economic recovery.
Submit your ideas to: chad@chadmcgowan.com.
