Work home, pay a price Self-employed deserve lawmakers' help

September 15, 1996|By Bennie L. Thayer

AMONG THE MOST important issues facing voters this election season are the dramatic changes in the way Americans work and live. Even as millions of people use the latest technologies to turn any space into an office, they are still forced to operate under rules heavily favoring large companies.

Many laws still refuse to acknowledge that the self-employed have "real" jobs and that home-based businesses are "real" businesses.

More than 24 million Americans are operating full-time or part-time businesses out of their homes, according to Link Resources Corp. An additional 40 million are projected to start up home-based businesses between now and 1999.

A number of factors have prompted this explosion in self-employment: years of downsizing by companies, an economy increasingly based on information and service, the development of low-cost technology that permits homes to become virtual offices and some two-career couples' desire to stay closer to their children.

Small business has become the engine powering the nation's economy. According to Dun & Bradstreet, businesses with fewer than 100 employees were expected to account for almost two-thirds of all new jobs in 1995. Half of all new positions were being added by firms with fewer than 20 workers.

Firms employing 10,000 or more people were projected to create just 3 percent of all new jobs.

Unfortunately, the laws governing the ways firms can do business have not kept up with these changes.

For example, companies can deduct 100 percent of the cost of their employees' health insurance, but the self-employed can deduct only 30 percent of the cost of buying their individual policies.

While Congress recently passed a bill allowing the self-employed an 80 percent deduction, that will take 10 years to phase in. Individuals working for companies pay one-half of their Social Security taxes. Their employer pays the other half.

But self-employed individuals must pay the full tax - a hefty 15 percent plus of their earnings - before paying their own salary or even their other taxes. And the Social Security tax isn't deductible from the income taxes of the self-employed. Companies renting office space can deduct the full cost of their rent. Storage space is deductible, too.

Individuals who operate out of a detached garage can also deduct that cost. But if you've set up shop in your home, prepare to have the Internal Revenue Service treat you with deep suspicion. The deduction is allowed only if the self-employed actually sees clients at the office, a rule no other type of business is forced to follow.

This suspiciousness is all the more remarkable considering that the home-office deduction is available only to businesses showing enough of a profit to have taxable income.

Business owners can't simply say, "I have a home office" and take the deduction. The business must show a profit big enough to offset the deduction. (Furthermore, some counties and localities have zoning laws that prohibit home-based businesses.)

Individuals on long-term projects for clients may sometimes find themselves suddenly reclassified by the IRS as employees - costing both the individuals and their clients huge amounts in fees, back taxes and penalties.

Every candidate running for office in 1996 needs to address the concerns of home-based businesses and the self-employed. The world's economy is changing. American laws need to keep pace.

The 1996 campaign should become a referendum on how candidates plan to stoke the economic growth potential of home-based businesses and the self-employed. As the fastest-growing business sector in the country, the concerns of the smallest of small business should be part of every candidate's platform.

This country can be brought back to its days as a fertile breeding ground for ideas, innovations and entrepreneurs. And that's something everyone can vote for.

Bennie L. Thayer is president of the National Association for the Self-Employed.

Pub Date: 9/15/96

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