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Workpuddle
Level 2

Sched C & Home Office Expense

I'm using TT Deluxe Desktop 2020. I have both K-1 (from S-Corp) & a small, separate business that I fill out Schedule C for. This year, the Sched C business lost about $1500 and my K-1income was about 32K. I'm trying to take the 12% of utilities that I should be entitled to take (that's the percentage of my home that's used for BOTH businesses, and they're 100% done at home).  In the past, I've used an accountant, so I looked at how he did it.

 

For 2019, the accountant's worksheet for 'Expenses for Business Use of Your Home'  is almost identical to the Form 8829 (for my 2020 taxes) that I was direct to by Turbotax Deluxe, with one important exception: the accountant's worksheet used my S Corp income on his worksheet, and thus I was able to take my deductible portion of utilities even though my Sched C business for that year (2019) was also a loss. But I don't see any comparable worksheet in TT Deluxe, and the 8829 Form uses only my Sched C income. Since I have a loss, it doesn't allow me to take the home office deduction (it wants to carry it forward). If I add my K-1 income to the Sched C, then it inflates my total income because I've already entered the K-1 income -- that income, and the loss from Schedule C , both flow to Schedule 1. ( I don't think I can just NOT enter the K-1 income on Schedule 1 and enter it instead on Sched C, but maybe I'm wrong).

 

Since I use my home 100% for both these endeavors, I should be able to deduct home office expense if there is a net profit (which there is).  The only way I found to duplicate what the accountant did in taking this deduction was to log it as an expense under a 'K-1 Additional Info' worksheet that I found in Turbotax. There's a section entitled 'Code H: Other income' which has a line 5 of 'Other nonpassive income (loss) to be reported on Schedule E, page 2'. So I entered '12% Business use of Home' and the 12% amount and TT automatically populated my Schedule 2 Nonpassive Loss field.

 

I would not have known about this had I not had several prior years of returns done by an accountant, and there was certainly no help from the TT instructions or 'Guide Me' portion. Is there a better way to take this deduction, maybe in a higher version of Turbotax? If not, I'll just keep doing it the way the accountant did.

 

1 Best answer

Accepted Solutions
DawnC
Employee Tax Expert

Sched C & Home Office Expense

Your Schedule C should only reflect income and expenses for that business.   Your K-1 business (s-corp) is a separate entity and your expenses from that business should be included as part of the K-1, either by the S-corp paying you rent for your home office space or the S-cop reimbursing you through an accountable plan.   Since your Schedule C is showing a loss, you cannot take a home office deduction for that small but still separate business.   The Line 25 Utilities Expense - These expenses apply only to utilities used at your business office(s) or properties, not in your home office.  So, the home office expense attributable to your Schedule C business is not deductible because of the negative income amount reported on Schedule C.   

 

Unreimbursed corporate expenses paid by shareholders are treated as unreimbursed "employee" business expenses.  Under the TCJA, unreimbursed employee business expense deductions are no longer permitted.  Like other employers, S corporation owners should establish an accountable plan to have the company reimburse home office allocations.   For home office expenses related to the S-corp:

 

  1. The S corporation can pay you a rental fee for the home office.  
  2. The S corporation can pay you for the costs of a home office under an "accountable" plan for employee business expense reimbursement.  

S-corporation home office deductions, reimbursements and expenses  -  These expenses should be included on the S-corp tax return and pass-through to you via the K-1 and/or your W-2.  

 

 

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Workpuddle
Level 2

Sched C & Home Office Expense

I realize I could have saved myself a lot of time by simply entering that 12% Home office expense for utilities under the 'Utilities' on Line 25 of Schedule C. And I would have bettered my bottom line refund by about $400. But I'm trying to do this the correct way & I am unsure if that line on Schedule C is appropriate for home office utilities -- maybe it's for an external office, I don't know. 

DawnC
Employee Tax Expert

Sched C & Home Office Expense

Your Schedule C should only reflect income and expenses for that business.   Your K-1 business (s-corp) is a separate entity and your expenses from that business should be included as part of the K-1, either by the S-corp paying you rent for your home office space or the S-cop reimbursing you through an accountable plan.   Since your Schedule C is showing a loss, you cannot take a home office deduction for that small but still separate business.   The Line 25 Utilities Expense - These expenses apply only to utilities used at your business office(s) or properties, not in your home office.  So, the home office expense attributable to your Schedule C business is not deductible because of the negative income amount reported on Schedule C.   

 

Unreimbursed corporate expenses paid by shareholders are treated as unreimbursed "employee" business expenses.  Under the TCJA, unreimbursed employee business expense deductions are no longer permitted.  Like other employers, S corporation owners should establish an accountable plan to have the company reimburse home office allocations.   For home office expenses related to the S-corp:

 

  1. The S corporation can pay you a rental fee for the home office.  
  2. The S corporation can pay you for the costs of a home office under an "accountable" plan for employee business expense reimbursement.  

S-corporation home office deductions, reimbursements and expenses  -  These expenses should be included on the S-corp tax return and pass-through to you via the K-1 and/or your W-2.  

 

 

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"

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Workpuddle
Level 2

Sched C & Home Office Expense

Thank you for your answer. Based on that information, it sounds like either the accountant who did my 2019 tax did something that was not permissible under TCJA, or I didn't understand what he was doing and thus did not explain it well in my question & comments. I do know and see that the amount in that 2019 'Non-passive loss allowed' field exactly matches  the 12% portion of the utilities that he was given. 

 

I'll get with my S-Corp partner and determine which of the TCJA-friendly ways we need to do this. Thanks.

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