• Denise Hue

Deducting Home Office Expense When You Own an S Corporation

In the old days, S corporations paid rent to their shareholder employees and the office in home income and expenses were deducted on Schedule E of the individual return. The recommended IRS method is for the employee to submit an expense report as part of what’s called an “accountable plan.”

So based on this guidance, here is the new way of deducting home office expenses if you are an employee of a S-Corp:

  1. Draft an accountable plan agreement for your company. It will outline what expenses are eligible for reimbursement, how they will be paid, etc.

  2. Calculate the percentage of your home that is used exclusively for business purposes. Divide the square footage used for business by the total square footage of the home and multiply by 100. We can provide you with a sample plan.

  3. Calculate the total amount of eligible reimbursable expenses. (Taxes, interest, utilities, repairs etc.) Multiply each amount by the percentage of business use calculated in the step above and enter the results on the expense form that you use for your accountable plan.

  4. Prepare expense reports as the employee and turn them in to your company on a regular basis. Attach receipts or other documentation to the form to substantiate them.

  5. Cut the check from the business account and deposit it into your personal account. Attach a copy of the check to the form as documentation that these were paid.

  6. Enter the amount of the payment into your S corporation’s records as a reimbursement for employee expenses.

  7. Post each expense claimed to the appropriate expense account so that these expenses may be deducted from the corporation’s income on its tax return.

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