One man S-Corp that pays himself a salary - what to enter for business income on 1040?

[kissfro]

I'm a one man LLC filing as an S-Corp for the first time. I'm also paying myself a salary. 

I've already used TurboTax Business to complete my 1120S. Now I'm doing my personal taxes with TurboTax Self Employed, and I'm a bit confused. I've entered my W2, K1, and full business income and deductions (same as on my 1120S) and my taxes are through the roof -- it's noting my income as double what it should be.

 So obviously I'm doing something wrong and with that I want to ask:

1) Is it right to assume that I don't have to enter the same business income and deductions that I've already entered on my 1120S? i.e. Shall I just not enter any information for this particular business?

2) If that is the case, how would I go about getting the home office deduction?

Thanks!

[Rick19744]

From what you are stating in your facts, it appears you are not handling your personal return correctly.

All company income and expenses are reported on the 1120S only.  The 1120S then provides a Schedule K-1 to each shareholder; in your case it is only you.

You will then use the information on the Schedule K-1 and input that into your personal return on Schedule E.  You do not enter any other company income or expense.  Only the K-1 information.

Here is some guidance on the home office deduction:

https://www.irs.gov/businesses/small-businesses-self-employed/home-office-deduction

https://www.irs.gov/businesses/small-businesses-self-employed/simplified-option-for-home-office-dedu...

https://www.irs.gov/uac/top-six-tips-about-the-home-office-deduction

However, keep in mind that you are not self-employed as the owner of an S corporation for purposes of this deduction (you don't pay SE tax on the earnings of the S corporation).

As such, you have three options:

1. The S corporation can pay you rent.  S corp gets deduction, you have income, essentially a wash.
2. You can claim the unreimbursed home office deduction expense as an itemized deduction subject to the 2% of AGI on your Schedule A.
3. You can have an accountable expense reimbursement plan set up with the S corporation.  This is the best method, however, you need to keep in mind that you will need to meet the tests noted in the above links to qualify.

[kissfro]

Thank you for that long and well thought out response, Rick. I have a couple of follow-ups if you don't mind.

1) If I use #3 like you recommend, would I use the same formula that the home office business deduction uses to calculate the deduction?

2) What section of my 1040 would I enter this on or how would I go about entering? Would I need to add anything to the 1120S?

Thanks!

[Rick19744]

In response to your follow-up questions:

1) Yes.  
2) When a company has an accountable plan, the employee must provide the necessary documentation to the company in order to get reimbursed.  The company then retains this documentation to support the reimbursement.  Also with an accountable plan, the company gets the deduction, the employee is reimbursed and there is nothing that is required to be reported on the W-2.  As a result, you do not have to do anything on your return as you have already been reimbursed.

Attached is a link from an IRS Publication that has a discussion on accountable plans:
<a rel="nofollow" target="_blank" href="https://www.irs.gov/publications/p463/ch06.html">https://www.irs.gov/publications/p463/ch06.html</a>

[kissfro]

So just to verify, on the 1120S, under Business Expenses -> All other expenses, putting it as "Home Office Reimbursement", would that suffice?

[Rick19744]

Yes.

[kissfro]

Thanks again!

[rfferling]

Per June 4 2019 response to this question:

As such, you have three options:

1. The S corporation can pay you rent.  S corp gets deduction, you have income, essentially a wash.
2. You can claim the unreimbursed home office deduction expense as an itemized deduction subject to the 2% of AGI on your Schedule A.
3. You can have an accountable expense reimbursement plan set up with the S corporation.  This is the best method, however, you need to keep in mind that you will need to meet the tests noted in the above links to qualify.

For #2, which is preferred, you cannot get Turbotax to accept a $$ entry unless you indicate you are disabled or use one of the other conditions.  How are supposed to get around this?

[RobertG]

Employees working from home can't take the home office deduction.

This has been in place since 2018, when the Tax Cuts and Jobs Act was signed into law.

Prior to that, employees who worked from home at the convenience of their employer were allowed to deduct home office expenses under the 2% rule.

@rfferling

[LudwigVan_fan]

He states he is also paying himself a salary.  Therefore, there should be W-2 wages to be reported on the 1040 in addition to the K-1 income.

The 1120S should be filing Form 941 and at a bare minimum, FICA taxes should be paid via F941.

This is important.  It is a major audit issue that IRS pursues on 1120S.  Owner/officer not paying salary.  If raised, the IRS almost always wins on this issue.