Mark J. Kohler explains how S corp owners can deduct home office expenses through two methods: the simplified $1,500 option or a monthly reimbursement based on actual costs. The reimbursement approach lets you claim a corporate deduction without creating taxable rental income, as long as you document it properly.
Chapters
Foreign. Office. If you have an S corp, can you rent back your personal residence to your S Corp? Corporations aren't people. Corporations don't have a home. That's why you'll never see a line on a corporate return saying home office. They just don't have a home office. They may say, well, their home office is in Milwaukee. No, that's the corporate office. It's not a home like a residence. So how do, how do we do this? Well, let's do our trifecta. So here's your Trust, here's your 1040. And over here is your LLC for your rentals. And here's your S Corp. I want to do home office and I do a lot of business out of my home. Now, I'll be blunt. If you're just going to write off the simplified method for 1500 bucks, I'm going to probably write it off over here. Simpler, easier, you took it, you're done. No audit risk. And if you have rental property, just take it over there. Don't even worry about it at the S Corp level. But if Miguel says. Where's Miguel from? Did you tell us where he's from? Miguel, we want to know where you're from. You must be from Duluth, Minnesota. So Miguel says, I want to write off the home office in my S Corp. And I'm going to use the standard method, going to write off $400 a month. That's $4,800 a year. That's not chump change. So what we would do is Miguel is over here as a W2 employee and he's also a shareholder because he's doing his S corp the way he should and he's taking his little salary. Miguel, you know what I'm talking about, right? Well, the S Corp is going to give you another check every month called home office reimbursement. It's not. Now, we would put it. You're right, Miguel. On the tax return on the 1120s tax return for the S Corp. I would put it in the box under rent because the corporation is renting it from you. But I don't want it to be rental income where you're going to pay tax. So what accountants will do is say we're going to calculate what the home office should have been and that's going to be the reimbursement amount. So it's non taxable to you. So the corporation gets a write off, you get this $400 a month. And I'm just using that as an example. I'm not saying that's what the it would be in every instance. But we're going to calculate what it would be might be $362.50 and you're going to write that off every month as rent in the S Corp and tax free home office reimbursement to Miguel the employee. That's how it works now. Well, if Miguel goes well, I want the corporation to rent it for 1,000amonth. Oh, okay. Well, now you've got a rental property. So your home that's owned by the trust is now going to rent part of the building to the escort part of your home to the S corp. Now you've got a claim on a schedule E rental income of $1,000. And now you've got to take write offs for that. Dah dah dah dah dah. I don't want to treat your home as a rental property. So Miguel, don't go there. We don't recommend that to our clients. Just do a home office reimbursement. By the time you jump through the hoops of renting the home from yourself, it's not worth it. Just do the home office reimbursement so the corporate gets a write off. You don't pay taxes on it. IRS is not going to audit for this and you're going to have work papers that calculate this amount. In my entire office. We're behind this. We understand it. We do trainings on this every year. That's the answer of how to write off home office in an S Corp.
