Home office deduction for S-Corp owners

Home office expense for S-Corp owners

Many S-corp owners often go without taking advantage of what is called an “Accountable Plan” for home office expenses. This is an effective and discreet way to run home office expenses through the business and does not require the use of one of those”red flag” forms commonly used by sole proprietors and schedule C filers. The accountable plan has become even more significant in the wake of tax reform because some S-Corp owners may find themselves using the new standard deduction amounts on schedule A, rather than itemizing for real estate taxes and interest. When this is the case, all of those deductions will go unused without the use of some sort of home office expense plan in place. The “accountable plan” for home office expense is completely legitimate, and has been addressed in several court cases. The IRS has acquiesced to the legitimacy of home office deductions via this mechanism, however the courts have determined that it can not be used to create a loss.  This is the best way to write off some of the expenses associated with working from home and reduce your taxable income.

Requirements

An accountable plan must meet three requirements to pass IRS muster:

  1. The expenses must have a business connection.
  2. There must be substantiation to support the deduction.
  3. Any excess reimbursements over actual expenses must be repaid promptly. 

 

Setting up an accountable plan is one of the best methods for a shareholder to get cash out of their corporation. Rent, distributions and wages are the other main methods. But, in contrast to those methods, accountable plan reimbursements are tax-free to the shareholder (as are distributions) and deductible to the S corporation, as are rent and wages. Accountable plans are truly a win-win all around for S corporations.  Williams & Associates CPA’s works with S-Corporations extensively. We do everything we can to help business owners reduce their tax burdens. If you’d like to speak with us regarding your S-Corp taxes, please feel free to give us a call.