Home Office Expenses of a One-Person Corporation

Home Office Expenses of a One-Person Corporation
In order for an area to qualify as a home office for any business, the space MUST be used REGULARLY on a continuous, ongoing or recurring basis and EXCLUSIVELY for your trade or business. There should be NO personal use. Additionally, the space must be your principal place of business or a place where you physically meet with patients, clients or customers on a regular basis.

If you are a Sole Proprietor, you can deduct a qualifying home office expense on Schedule C as long as it is an ordinary and necessary expense. However, if you are an Employee of your own one person Corporation, whether it is a C Corporation or a Sub Chapter S Corporation, you have three options when deducting a qualifying home office.
You can deduct the costs as an unreimbursed “employee businessexpense” under “Job Expenses and Other Miscellaneous Deductions” on Schedule A. The downside to this option is that your deduction is limited to the extent that the total home office deduction exceeds 2% of your adjusted gross income. If your income is high, this may not be the most advantageous option for you.
The corporation can pay you rental expense for the home office deduction. While the corporation can deduct the rent paid to you, you on the other hand, MUST report the rent as income on Schedule E.
The corporation can pay you the costs of the home office deduction under an “Accountable” plan for the employee business expense reimbursement. This by far is the best option because it provides the greatest tax savings. It is also an excellent way to get monies out of your corporation tax free. The corporation gets to deduct the amount of the reimbursement, and you the employee DO NOT have to report the payment as income.

Finally, keep in mind that as an employee of the corporation, the home office must be for the convenience of the employer. In other words, the home office is required as a condition of your employment.

For a more detailed discussion on taking the home office deduction, call or email me. To read more on home office deduction, read Publication 587.