Discussion:S Corp Home/Office Expenses

The other alternative I've thought about is to simply calculate a "rent" expense amount for the s-corp to deduct but then the owner has to pick up income...defeats the above-the-line deduction.

posada

The expenses paid by the corporation should be deducted on the 1120S, subject to the net income limitation.

Thanks to all..

Diane Offutt

But I think this is so unfair, if you can deduct your interest and RE taxes on Sched A anyway, and really what you want to get the benefit from the incremental portion of all the utilities, alarm, etc related to the % of your home used by your office. I still like what I hear about the accountable plan and just having the S-Corp reimbursing me back as a business expense with no tax consequences.

Given that my CPA told me I could not do this last year and so much that I hear about the accountable plan, I decided to give the IRS business assitance line a try. They told me that if you do not get reimbursed, to use pg 22 of the the Pub, which is the Form 8829 and carry the totals to the 2106 subject to the 2%AGI limit, but if I got reimbursed, I was supposed to rent to my S-Corp at the FMV, and I would do the proration of all utilities including depreciation and report it on my personal Sched E and deduct the expenses in there. I had to deduct the depreciation no matter what, because they would tax me on if I sold the house regardless of whether I took it or not, because I was entitled to. But renting at FMV, I don't think I can say that, since I simply do the proration of taxes, interest and utilities.

My question is, What can I do in this 3rd year of business: we had a profit and paid salaries in this year. I still have my 12/31/06 check written for the home office expense but not cashed yet. 1) Even though we expensed rent in the S-Corp books and used Sched E last year to report the rent recd in my personal tax (which was just the interest and taxes), can we use the accountable plan and run it as an expense report using the Pub 587 to figure out the deduction if you are an employee (I guess the worksheet not the form 8829 since we are employees of our own s-corp).

2)Is it possible to just reimburse us for the utilities and ignore the interest and taxes since I think we'll benefit more by putting it on Sched A, and given that depreciation is just very small and I have to include that as income when I sell the home, I really do not want to bother with it.

Any thoughts on this?

UNDER THE IRS RULES,YOU CAN LEASE SOME OF YOUR HOME SPACE TO YOUR S CORP FOR AN AMOUNT EQUAL TO 14 DAYS OF RENT INCE YOU DON'T HAVE TO PICK UP THE INCOME IF YOU RENT YOUR HOME FOR 14 DAYS OR LESS...

DON'T YOU THNK IT'S A GOOD TIP?

And, Yes, I was joking.

John Huddleston Seattle Bellevue Tax Accountant

John Huddleston Seattle Bellevue Tax Accountant

John Huddleston Seattle Bellevue Tax Accountant

Sec. 280A. Disallowance of certain expenses in connection with
       business use of home, rental of vacation homes, etc.

   Sec. 280A

Pay special attention to this part:

(6) Treatment of rental to employer

       Paragraphs (1) and (3) shall not apply to any item which is
     attributable to the rental of the dwelling unit (or any portion
     thereof) by the taxpayer to his employer during any period in
     which the taxpayer uses the dwelling unit (or portion) in
     performing services as an employee of the employer.

JDugan, most of the time clients are concerned about the deductibility of an item. I think in most cases business owners are not going to care that they can pay rent from the corp to themselves if it's not deductible.

I'd like to make sure I understand this issue and others, so let's assume the following:

Business owner is sole worker

Office is in a home which the business owner rents

As an S-corp, home office is not deductible by corp.

As a sole proprietor, however, full deduction allowed as long as there's income.

Under sole proprietorship, medical insurance plans are more expensive and include less benefits and are cheaper.

Under S-corp or C-corp, medical plans include better benefits, e.g., life insurance.

Under C-corp, owner can participate in Sec. 125 plan and have pre-tax out-of-pocket medical and dependent care costs.

Under S-corp and sole proprietorship, no can do.

Now, if one has a corporation and owns it 50/50 with a spouse, then state unemployment insurance can be waived (in Hawaii). And, of course, as a sole proprietorship, there are no wages, so there's no unemployment tax at all.

Am I missing anything?

The S Corp limitation doesn't apply when the space is not being used by the employee to perform services as an employee. For example, I have a client that has a recording studio in his home. His clients will come and use the studio. Since he is not performing services as an employee there, the limitation does not apply. I think the rule is the same for storage.

John Huddleston Seattle Bellevue Tax Accountant

John Huddleston Seattle Bellevue Tax Accountant

The section makes reference to an exception if the office is for the employer's convenience. I honestly am having a hard time following it because it seems to go back and forth with so many exceptions.

I think I understand the storage issue. So if the home office includes a closet that is used for files, that appears to qualify for deduction by the S-corp. Now let's say one room is used to perform administrative tasks. Employee performs these tasks in the home for the convenience of the employer. Not deductible because performing services as an employee? Let's also assume there's another room where owner/employee meets clients. Is this treated differently?

Now assume the corporation hires two other professionals who use two of the other rooms. As I read John, the reimbursement the corporation pays Natalie to rent these rooms can be offset by the rent she pays, or Natalie could deduct that share of the rent as a business expense if she paid it herself.....naturally Natalie would probably have the corporation simply pay the rent for those two rooms. It would not be income to her in that case since, as John notes, she is not using that space as an employee.

Am I on the right trail, John? So where does JR's accountable plan fit (see above) in for the reimbursement of her home office that is rented?

I am the only shareholder of a corporation that was started in the middle of 2007. There was almost no income in 2007, so I was lazy when it came to filing my S-corp election. I got a notice from the IRS that I would not be able to file as an S-Corp for 2007, but they accepted my status for 2008. I do not know what implications that has on my deductions for this year.

2008 is going good and the company(service based website) is making some money. I have some general questions, and I hope to get more than one opinion here. I own my own home and deduct the interest and property taxes from my personal taxes. I have read all of the posts on this page and many of the answers are over my head. I am hoping that you can explain it to me like the tax idiot I am because March 15th is the first time I will be filing a corporate return.

Here it goes:

1. What is the best way, in your opinion, to pay myself? 2. In your opinion, what is the best way to write off the use of office space in my home, which i use to manage the business/website? 3. Should I consider paying rent from the business as a tenant to myself as the landlord? The office is in my dwelling. I imagine I would need to draw up a lease. 4. Should I setup the internet and phone/fax in the business name, or is that overkill? 5. What are other common deductions/loop holes that people in my type of business use to their advantage? 6. What effect does my failure to file the Chapter S election on time have on this year's filing?

I really appreciate any tips/advice you can offer. Ryan [1][2]

But here's my caveat - I had 3 different CPA's before I found one I could form a decent working relationship with. I either was too small of a fish for them to bother with, or they charged way more than their estimate (10X as much), etc. Try to get a good, trusted reference. If you tell this forum where you are, someone might be able to recommend someone to you. When you find the right one, it will save you money, time, and headaches in the long run.

John Huddleston Seattle Bellevue Tax Accountant