Posted On December 12, 2015 at 11:34 pm in Advancing Yourself
Self-employed plumbers, veterinarians, computer consultants, and anesthesiologists have a new friend in Washington. It’s called H.R. 3407–House of Representatives Bill 3407–an act that proposes to restore the full home-office deduction to them and the thousands of other Americans who work for themselves from a home office but perform their services out in the field.
The Supreme Court sandbagged that group last year when it ruled in the Commissioner of lnternal Revenue v. Solimon case that the home-office deduction would not be available to businesspeople who plied their trade away from their home offices—even if those offices were used exclusively for business.
Despite the IRS’s argument that the court’s ruling in the case only verified existing policy, the agency has clearly taken the decision as a sign to tighten up the rules. New directions included with 1993 tax forms note that home offices are deductible only if they are used regularly, exclusively, and principally for business. To determine if a home office is a principal office, a taxpayer must weigh various business activities.
“If the nature of your business requires that you meet or confer with clients or patients, or requires that you deliver goods or services to a customer, the place where that contact occurs must be given greater weight in determining where the most important activities are performed. Performance of necessary or essential activities in your home office (such as planning for services or the delivery of goods, or the accounting or billing for those activities or goods) is not controlling,” read the IRS directions.
Reaction on the Hill
To many observers, both the Supreme ‘Court ruling and the IRS response seemed like an overreaction that denied many businesspeople their legitimate business deductions. One observer–Rep. Peter Hoagland (D-Nebraska), H.R. 340Ts sponsor–drafted th.e bill so that people who administer or manage their businesses from a home office could qualify for the deduction.
The bill is not a radical departure from existing law; it maintains the regular and exclusive tests and merely expands the principal test to include “essential administrative or management activities.” H.R. 3407 would allow deductions for exclusive home offices if they are necessary “because the taxpayer has no other location for the performance of the administrative or management activities of the business.”
Without the bill, people who perform their jobs away from their home offices–cosmetic saleswomen, photographers, carpenters, programmers, and the like–will have a difficult time taking their deductions. Hoagland conjured up the image of a home-based rural veterinarian and asked, “Do we really want the law to require the cow be brought to the office?”
“No!” responded many of his congressional colleagues, who not only imagined the cow in the dining room but also added up the number of their constituents who work from home and jumped on as cosponsors of the measure.
Those cosponsors give this bill the best chance yet of passage in a Congress that’s been deficit-drubbed into shunning any legislation that provides tax relief to anyone. Hoagland is on the crucial tax-writing Ways and Means Committee, as are Democratic cosponsors Mike Kopetski (Oregon) and John Lewis (Georgia) and Republicans Philip Crane (Illinois), Nancy Johnson (Connecticut), and Rick Santorum (Pennsylvania). Noncommittee cosponsors include Kweisi Mfume (D-Maryland). This collection of politicians would not be on the same side of an issue unless it was one of universal popularity.
Handicapping the Bill’s Chances
It is that universal popularity that this bill needs if it is to be enacted, because of the complicated parliamentary rules that shape Congress’s consideration of financial matters. “Right now, I’d give it about a 50-50 chance of passage, given that Clinton is not calling for a comprehensive tax bill this year,” says Benson Goldstein, a lobbyist for the National Association for the Self-Employed (NASE), which has been a driving force behind this bill.
A spokesperson for the House Ways and Means Committee explained that two key rules could kill the legislation–the revenue neutral rule and the Byrd rule. The first requires that all tax and budget provisions affect revenue evenly. If it spends Treasury money, it has to make it back in some other way in a zero-sum game. The Byrd rule prohibits the Senate from debating amendments to the annual budget bill that do not directly relate to the budget itself.
So home-office relief could die at either legislative roadblock. The only way to get an amendment like the home-office deduction through the Senate on the budget bill, says John Satagaj–president of the Small Business Legislative Council, an organization of other small-business trade groups–would be to “create such an urgent need for the legislation that Congress just has to do it.”
If enough Senators get behind the home-office bill, they could keep it in the budget bill by “unanimous consent”–an agreement that it can stay in without any debate or further amendment. That is the sense of urgency that Satagaj says sponsors are trying to create on the home-office bill.
The Grass-Roots Effort To that end, backers are painting H.R. 3407 as much more than an arcane measure that will provide relief for doctors and others not generally high on the sympathy list. Instead, the bill is about motherhood and civil rights and disability relief. Says Hoagland, “For many people with historically poor access to capital, such as women and minorities, and for many people for whom traditional office environments or commuting pose problems, such as the elderly and the disabled, the home-based business can be an important road to economic independence.”
Bennie Thayer, chief executive officer of NASE, adds, “The bill is pro-family. It lets one spouse stay with the kids and at the same time operate a small business to earn extra money.” The National Association of Women Business Owners is one of several professional associations that have banded together in a coalition to get this bill passed.
That coalition, formed by NASE with the Small Business Legislative Council, also includes the National Society of Public Accountants, the National Association of the Remodeling Industry, the National Association of Small Business Investment Companies, the Direct Selling Association, the Specialty Advertising Association International, the Illinois Women’s Economic Development Summit, the Bureau of Wholesale Sales Representatives, and the Alliance of Independent Store Owners and Professionals. The American Institute of Certified Public Accountants, the National Federation of Independent Business, as well as our site support the legislation but are not currently members of the coalition.
These groups are lobbying Congress, studying the provision for its true economic impact, and at press time, seeking Senate sponsors for the bill. The group urges homebased professionals to write in support of the measure.
Today, the Home Office; Tomorrow, a New Agenda?
Though it is still in its infant stage, the formation of a coalition around the home-office issue bodes well for homeworkers who, until now, have not had a unified voice in Washington on issues including taxes, health care, and insurance. With their numbers increasing rapidly, home-based workers can look forward to finding a greater voice on these issues. What you do–such as contacting your representatives–makes a big difference. “This isn’t just an isolated fluke,” says Satagaj of H.R. 3407. It could be the start of something big.
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