S-Corp Home Office & Auto Expenses

[n1njah]

Hi, have two questions:

1. If a shareholder-employee uses a portion of their apartment as an office and personally pays the rent/utilities/insurance, can the S-corp deduct those on the 1120S? (apportioned to sq. ft use)

Or do you have to have an accountable plan and be reimbursed from the S-corp?

2. Same question for auto - if you use your personal car for business as well and the expenses were personally paid for by the shareholder-employee, can the S-corp take auto expenses based on the business mileage? Would it be standard mileage rate or actual expenses? And what about depreciation for the car - If you don't end up deducting the standard/actual expense can you just take depreciation by itself? 

[JosephS1]

The shareholder/employee cannot deduct the expenses individually as it appears from your question that you are aware.  The S-Corp would have to initiate a reimbursement policy for an accountable plan and make sure it becomes part of the corporate minutes.  Legal advice for the wording is suggested.

Not making the new proposed policy part of the corporate minutes and being approved by the President/Secretary/Board can have it eventually be attacked by the IRS and disallowed. 

To make it as simple as possible, have the employee submit expense reports, along with copies of the documentation substantiating the expenses, to the Company for reimbursement and have that report approved by someone, if possible, other than the officer/employee submitting the report.  If that is not possible, have the company policy be one which requires documentation before expense reimbursement will be allowed.  That should prove defensible should the IRS or a state agency attempt to disallow the deductions.

@n1njah 

[Rick19744]

In addition to the previous response, you need to make sure that you meet the requirements to request reimbursement for any home office expenses.

• To qualify as a home office, eligible for reimbursement, the space (square footage) must be used regularly (on a continuous, ongoing or recurring basis) and exclusively (there can be no personal use) for your trade or business.
• It must be your principal place of business or a place where you physically meet with clients or customers on a regular basis.

You need to make sure all of the above is documented and that you have an accountable plan in advance of the request for reimbursement.