HOME OFFICE EXPENSE FOR S-CORP SHAREHOLDER

-If you are a shareholder in an S Corporation there are two possible ways of deducting home office expenses (an allocated share of utilities, repairs and other home costs).

You can deduct employee business expense, using Form 2106 and listing it as a miscellaneous deduction on Schedule A. This method requires that you subtract 2% of your adjusted gross income from your miscellaneous deductions. Also, you might get more by using the standard deduction, making the whole thing useless.

A better way, assuming you receive a reasonable salary from the corporation (which you may control or own 100%) would be under an accountable plan in which you provide an accounting to the corporation for the expense and receive reimbursements from the corporation. This would, if done properly, make the expense deductible by the corporation and tax-free to you as an employee.

BUT BEWARE:
In an August 2005 court case the accountable plan approach was disallowed. The corporation had adopted a resolution requiring the shareholder/employee to provide home office facilities and incur other expenses without obligating the corporation to reimburse the employee/owner. Even if the corporation voluntarily reimbursed the employee, it was considered by the court as taxable income to the employee and he could only deduct it by taking it as an itemized deduction (reduced by 2% of his Adjusted Gross Income).

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This information is not intended to be advice to the recipient. In compliance with Treasury Department Circular 230, unless stated to the contrary, any Federal Tax advice contained in this Blog was not intended or written to be used and cannot be used for the purposes of avoiding penalties.