Washington D.C.--Small businesses will get essential help navigating through the tax system if a bill cosponsored by U.S. Senator Mike Enzi becomes law.
Enzi cosponsored the Home-based Business Fairness Act of 1997, which was introduced through the Senate Small Business Committee this week.
Enzi said the legislation will provide for health insurance fairness, the home-office deduction and clarify the status of independent contractors, three items that "have weighed heavily on the small business community for years."
"It is a good bill because it responds directly to what small businesses have been asking Congress to do," he said. "The bill will create jobs that will put people on welfare back to work, enable small businesses to keep afloat in the sea of technological change and give the self employed and home-based businesses the opportunity to flourish through modernization of our tax laws."
Last year Congress voted to raise the deductibility of health insurance costs for the self-employed from 40 percent to 80 percent by 2006. "That's a good start," said Enzi. "But if we know the tax treatment is not fair, then shouldn't we make it right? That's what this bill does." Large corporations currently enjoy 100 percent deductibility for their employees' health insurance costs.
Under the Home-based Business Fairness Act the self-employed would have equal footing with the large corporations. The provisions of this Act would amend the Internal Revenue Code to increase the deduction for health insurance cost for self-employed individuals to 100 percent beginning Jan. 1, 1997.
The proposed legislation would also add fairness for people who work in their homes.
"The message now is, if you can't afford a 'real office,' then you can't deduct your expenses. In this way, we increase the hurdles for entrepreneurs who want to earn a living, but can't afford to rent separate office space," said Enzi. "The current law is especially hard on women. One in 20 women entering the workforce today are starting their own businesses. That's twice the rate of men and their numbers are growing. Many of those businesses are started out of the home. The Home-based Business Fairness Act would clear their path."
As it stands now, people who work in their home are only eligible to deduct their office expenses if their customers physically visit the home and the income of the business person is generated within the home itself. For example a person who starts an interior decorating business wouldn't necessarily be allowed to deduct office expenses because that person visits the customers in their homes and generates income in customers' homes, not from transactions that occur outside the business person's home office.
The Home-based Business Fairness Act would change that. It would amend the tax law so taxpayers, who perform their services outside the home, but use their home office for essential billing and record keeping, would qualify for the home-office deduction.
"Another puzzling anti-business setup that this bill would simplify is the definition of 'independent contractor,'" said Enzi. "In Wyoming for example, the IRS has taken after the last bastion of budding entrepreneurs, our paperboys and girls. The agency is saying they don't qualify as independent contractors, therefore newspapers would have to put them on salary, paying all the benefits. Because of the added expense, newspaper readers go without the paper on their front step and kids have to find another way to make a couple of bucks. Lemon aid stands in Wyoming aren't very profitable in December."
The Home-based Business Fairness Act would eliminate this problem and others caused by the current tax code by simplifying the independent contractor 'test' from 20 steps to three, making it more user friendly.
"The small business owners of tomorrow are counting on us to pass this legislation," Enzi said on the Senate floor Tuesday. "I thank my colleagues on the Small Business Committee and Assistant Majority Leader (Don) Nickles for their work on the bill. I urge other senators to support it."