S Corporation Owners: Make Your Home Office Work for Your Business
You work from home. You pay the bills. But did you know your S corporation may be able to reimburse you for some of those expenses?
If you own an S corporation and regularly work from home, you may have a valuable tax-planning opportunity.
Your corporation may be able to reimburse you for qualifying home-office expenses through an accountable plan.
The benefit? Your corporation may deduct eligible expenses, while properly documented reimbursements generally are not taxable wages to you.
What Expenses May Qualify?
Depending on your circumstances, eligible expenses may include:
Electricity, gas, and water
Homeowners or renters insurance
A portion of your rent
Certain repairs and maintenance
Other qualifying home-office costs
How Much Could Your Corporation Reimburse?
Here’s a simple example.
Your home is 2,000 square feet, and your dedicated office is 200 square feet.
Your business-use percentage is 10%.
If your eligible household expenses total $12,000 annually:
$12,000 × 10% = $1,200
Your corporation may be able to reimburse you $1,200.
When properly handled, the corporation may deduct the expense, and the reimbursement generally is not taxable wages to you.
This is a simplified example. Actual eligibility and calculations depend on your circumstances.
Three Things You Need to Know
1. Your home office must qualify.
Generally, you must use the space regularly and exclusively for qualifying business activities.
2. Keep your records.
Save household bills, document your office measurements, and calculate the business-use percentage.
3. Use an accountable plan.
Your corporation needs a proper reimbursement arrangement. Simply transferring money to your personal account does not automatically make the payment tax-free.
What Should You Do Next?
If you own an S corporation and work from home:
Confirm that your workspace qualifies.
Gather your household expense records.
Calculate your business-use percentage.
Ask your tax professional about establishing an accountable plan.
The opportunity is simple: Your corporation may be able to reimburse you for legitimate business expenses you’re already paying personally, while deducting those expenses and generally keeping properly documented reimbursements free from income and payroll taxes for you as an employee.
At San Diego Precision Tax Service Inc., we help business owners identify tax-planning opportunities and apply the rules correctly.
Contact our office to review your home-office reimbursement options.
General information, not tax advice.
Sources: IRS Publication 15; IRS Publication 587; Treasury Regulation §1.62-2.
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