How to Take a Home Office Deduction for your S-Corporation

If you use a part of your home for your business, the IRS lets you deduct a portion of your household expenses as a home-office deduction. For a partner in a partnership, this can simply be reported on Schedule E of your personal tax return as “unreimbursed partnership expenses.” But a shareholder in an S-corporation who owns more than 2% of the stock isn’t allowed to do that. One option is to take a miscellaneous itemized deduction for unreimbursed employee expense. However, you only benefit from that if your miscellaneous itemized deductions exceed 2% of your income, so you might get only a partial deduction or even none at all. But if you use an accountable plan, you can deduct the whole amount and save on taxes.

An accountable plan is an agreement between the S-corporation and the shareholder outlining the expenses eligible for reimbursement. Monthly or quarterly you create an expense report listing the expenses to be reimbursed. The S-corporation then reimburses you by cutting a check from the corporate bank account. The company gets a deduction for the whole amount, and the reimbursement is tax-free to you. For a home office, you can deduct a portion of your overall household expenses including mortgage interest, real estate taxes, utilities, insurance, maintenance and general upkeep. Make sure you reduce the amount of mortgage interest and property taxes deducted on your personal tax return by the amount reimbursed to you by your S-corporation. Our office can help you draft a plan and decide which expenses should be a part of it. Call us today to see how an accountable plan can help you save on taxes!