You likely know that the home-office tax deduction provides
tax savings to business owners. It turns otherwise nondeductible personal
expenses into valuable business deductions.
When you operate your business as a proprietorship, you simply deduct home-office expenses on Schedule C. But when you operate your business as an S corporation, you face special rules to achieve the same benefits.
Why Rent Fails
One method some taxpayers mistakenly use is renting the office to the corporation. This will provide you a tax benefit of exactly zero dollars.
The S corporation deducts the rent paid to you. You include the rent in your taxable income on your personal tax return. But the tax code does not allow you to claim tax deductions against this rental income.
Result. You simply moved the money from one hand to the other, and that results in no tax benefit whatsoever!
The Right Way for Deductions
And then, there’s just one right way to get the full benefit
of the home-office deduction for your corporation, and that’s by using the
reimbursement method. The reason the reimbursement method is the one right way
is simple—it’s the only way that works!
Here’s how:
- As an employee of your corporation, you submit expense reports to your corporation for the expenses of your home office.
- The corporation reimburses you for the home office and claims 100 percent of the home-office deduction as office space on its corporate tax return.
- You receive the reimbursement as reimbursed employee business expenses. Such employee reimbursements are not taxable to you.
With the home office at the corporate level, you (the
employee) need to submit expense reports that satisfy the rules for the home-office
deduction. This can be tricky, and that’s where I come in. I can help you with
this.
Let’s arrange a time when we can get together and go over
how you create the proper expense reports for this deduction.