Home-Based Businesses Restricted byRegulations

Thomas Sullivan

WASHINGTON, D.C. Home-based businesses face daunting restrictions from both federal and local regulations, according to a research report released today. The report documents the difficulties of complying with complex and confusing IRS rules for home office and equipment deductions. It also describes many of the zoning restrictions faced by the fifty-three percent of small businesses that are home-based.

“Home-based businesses are a significant part of our economy,” said Thomas M. Sullivan, Chief Counsel for Advocacy. “Our research shows that federal regulations already have a disproportionate impact on small business. This report shows how local zoning regulations can have a big impact on small business, as well. Since a majority of businesses are home- based, these restrictive regulations should be reviewed by policy-makers at all levels of government,” he said.

Released at the Washington offices of the National Association for the Self-Employed (NASE) the report, Home-Based Business and Government Regulations (http://www.sba.gov/advo/research/rs235tot.pdf) was written by Microeconomic Applications, Inc. and funded by the Office of Advocacy. NASE represents and is a resource for the nation’s self-employed and micro- businesses.

At the federal level, the report found that IRS regulations penalize home-based businesses in their treatment of deductions. In particular, claiming a home-office deduction is complex; the depreciation is spread over an unrealistically long time; and returning the space to full residential use generally entails penalties.

The report examined state and local regulations in Arizona, California, Illinois, Iowa, Pennsylvania, and Vermont. It found that the most restrictive regulations are at the local zoning level. It also notes that some states have begun to enact legislation that is supportive of home- based businesses. Vermont, Maryland, and California were cited for such legislation.

The Office of Advocacy, the “small business watchdog” of the government, examines the role and status of small business in the economy and independently represents the views of small business to federal agencies, Congress, and the President. It is the source for small business statistics presented in user-friendly formats and it funds research into small business issues.

For a complete copy of the report, visit the Office of Advocacy website at www.sba.gov/advo.

Created by Congress in 1976, the Office of Advocacy of the U.S. Small Business Administration (SBA) is an independent voice for small business within the federal government. Appointed by the President and confirmed by the U.S. Senate, the Chief Counsel for Advocacy directs the office. The Chief Counsel advances the views, concerns, and interests of small business before Congress, the White House, federal agencies, federal courts, and state policy makers. Economic research, policy analyses, and small business outreach help identify issues of concern. Regional Advocates and an office in Washington, DC, support the Chief Counsel’s efforts. For more information on the Office of Advocacy, visit www.sba.gov/advo, or call (202) 205-6533.

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