S-corporation home office reimbursement and other expenses.

A lot of owners of S corporation don’t know that some miscellaneous costs spent from personal account can be deducted providing the greatest tax savings. The expenses such as home offices, equipment use, car driven for business, and other miscellaneous expenses can be deducted fully. And this option is called an “Accountable plan for expense reimbursements”.

There are several conditions that should be met for you to be able to deduct these expenses. First, you must have an internal written policy and reports substantiating the expenses. Second, the Company must reimburse (pay) you for these expenses. It is an excellent way to get money out of your closely-held corporation tax-free. The corporation can deduct the amount of the reimbursement and you do not have to report the payment on your personal income taxes.

This option is "more better" than having the corporation pay you rent for the home office. While your corporation can deduct the rent paid to you, you must report the rent as income on Schedule E.

To qualify as a home office, the space must be used regularly and exclusively for your trade or business, and it must be your principal place of business or a place where you physically meet with clients. The space will be considered your principal place of business if it is used for performing administrative or management activities, such as billing, bookkeeping, ordering supplies, setting up appointments and writing reports, and there is no other fixed location where you regularly perform these activities.

For an expense reimbursement plan to be considered "accountable," the expenses that are reimbursed must be for actual job-related expenses and you, as the employee, must substantiate the expenses by providing your employer, your S-Corp, with receipts or other documentation.

You should create a monthly "Employee Expense Report" form for your corporation. This is a good idea whether or not you have a home office. And you also can organize reimbursement for other business expense reimbursement such as business mileage and other out-of-pocket business expenses, such as postage, office supplies, parking and tolls, meals and entertainment, etc. Staple receipts for these items to the report.

Include a Home Office section in the report. Calculate the "business use percentage" of your home office by dividing the square footage of the office area by the total square footage of the home. List each item of expense paid during the month, such as:

• real estate taxes

• homeowner's insurance

• oil heat, gas and electric

• water and sewer

• alarm or security service

• garbage disposal

• general repairs and maintenance

• mortgage interest

Multiply the total of these expenses by the business use percentage to determine the amount to be reimbursed. Total up all the business expenses listed on the form, including the home office amount, and write a check from the corporation to yourself for this amount.

Reach out if you need help to prepare the “Accountable plan for expense reimbursements” policy and need any help how to calculate the reimbursement cost or how to organize reporting for such reimbursements.

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