If you have a home office and recently transitioned your business to an S-Corp, you’ll want to understand the steps you need to take in order to continue to take the home office deduction available to you. Here are the steps you need to take to deduct your home office as an S-Corp.
- You must complete an accountable plan. This plan will outline which expenses will be eligible for reimbursement, and how they will be paid. You may download a sample accountable plan here.
- Calculate the percentage of your home that is used exclusively for business purposes. To calculate this percentage, divide the home office square footage by the total square footage of your home. So, if your home office was a 10×10 room, the square footage of would be 100. If your entire home was 1,500 square feet, you would divide 100 by 1,500. In this case, you would get to deduct 6.7% of your home office expenses by multiplying that percentage by eligible home expenses like mortgage interest or monthly rent, utilities, interest, repairs and depreciation.
- Calculate the total amount of eligible reimbursable expenses. Use the IRS Form 8829 to assist with this calculation. Multiply each amount by the percentage of business use calculated in the step 2 and enter the results on the expense form that you use for your accountable plan.
- As an employee of the S-Corp, you must prepare expense reports and submit them in to your company on a regular basis. Be sure to keep all receipts or other documentation associated with the expense.
- To reimburse yourself for the expense, cut a check from the business account and deposit it into your personal account. Attach a copy of the check/transaction to the expense form as documentation that these were paid.
- Enter the amount of the payment into your S-Corp’s records as a reimbursement for employee expenses. Assign each expense claimed to the appropriate expense account category so that these expenses may be deducted from the S-Corp’s income on its tax return.
Bonus for email subscribers: Download the S-Corp Accountable Plan Reimbursement Worksheet!
While this does take a little effort to get started, once you have your accountable plan and reimbursement process in place the rest of the process is easy! If you need a little assistance or reassurance with your calculations, feel free to contact me.