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joseph_ld
Level 2

Switched from Home&Business to Business: where do I insert my employee wages and other deductions?

I recently switched my single member LLC being taxed as a sole proprietor to an S-corp. So I had to switch to TT-Business.

I pay myself as an employee and gave myself a W-2. On salary and wages there are 3 fields, Officers, Sharholders (>2% owners), and "All other Employees".  I am an officer and an employee. Where do I put my employee wages?

 

Also, in TT-home and business, I use my home office as a deduction(depreciation) and home office expense like(partial electrcity, water, internet, etc.) . How do I deduct that from TT-B?

4 Replies
gloriah5200
Expert Alumni

Switched from Home&Business to Business: where do I insert my employee wages and other deductions?

Being an officer would override being an employee for reporting your wages paid to you on the return.

 

It depends on what method you used. There's two ways to claim the home office deduction. You can take a deduction for the percentage of the actual expenses that pertain to the home office (the regular method), or you can use the simplified method. If you used the simplified method, you took no depreciation. Below is some more information about the simplified method per Rev. Proc. 2013-13 (PDF):

  • Taxpayers can elect to calculate the deduction for using a home office for business under the simplified method rather than deduct actual expenses.
  • The simplified method is calculated by multiplying $5 by the square footage of the area in the home used for business.
  • The maximum area allowed under the simplified method is 300 square feet.
  • The simplified method simplifies recordkeeping and substantiation rules. Taxpayers do not have to separately keep track of the actual cost of utilities, maintenance, repairs, depreciation, etc.
  • When the home is sold, depreciation recapture does not apply for the period of time the simplified method was used.

If you don't know off the top of your head which method you used, you can check by reviewing your Schedule C forms. The line numbers may have changed over the years, but you will be looking for Expenses for Business Use of Your Home (line 30 in 2019). This line will tell you if you took the simplified method or the regular method.

 

So let's say you took the simplified method in 2019. Easy--no depreciation was taken for the home office, and you will indicate this accordingly in the software. 

 

However, if you find that you used the regular method, the next thing to do is look for Form 8829 (Expenses for Business Use of Your Home). The line numbers may have changed over the years, but you will be looking for Depreciation allowable (line 42 in 2019). Once you get that number for each year, add it up, and that will be the amount of depreciation deductions you took. 

 

Now, if you discover that you used the regular method but neglected to take depreciation in any year, please reply back with details. That is a special situation that requires a very specific approach. 

 

where to find office in home deductions for Sch C

 

As an owner of the S-Corp, if you work for the S-Corp, the S-Corp has to pay a normal salary and you are an employee of your S-Corp.

 

As an employee, you cannot deduct home office expenses as they are job-related and employee business expenses are no longer deductible on Sch A on the individual return.

 

The best arrangement is for the S-Corp to reimburse you the cost of your home office under an accountable expense plan.

 

Unfortunately, as an employee of your S-Corp, you cannot claim either the home office deduction or unreimbursed expenses.

 

Nothing can be done for tax year 2020. But you can set up an accountable plan with your S-Corp now and in 2021, submit an expense for your home office expenses for both 2020 and 2021. As it is an accountable plan, the amounts reimbursed are deductible by the S-Corp, but not taxable for you.

 

Please read this article for more information.

joseph_ld
Level 2

Switched from Home&Business to Business: where do I insert my employee wages and other deductions?

Hi Gloriah5200,

I am even more confused by your answer.

"Being an officer would override being an employee for reporting your wages paid to you on the return."

If I issued myself a W2 of $50k, for example, I would put this in the officer field instead of the employee field of TT-Business?

 

I have used the regular method in the past using TT-Home&business. It walks you through it.

 

"As an employee, you cannot deduct home office expenses as they are job-related and employee business expenses are no longer deductible on Sch A on the individual return."

This makes sense but why go through the example of regular method or simplified method? Or are you saying that, me as an employee cannot deduct home office expense, but the S-corp can?

DMarkM1
Expert Alumni

Switched from Home&Business to Business: where do I insert my employee wages and other deductions?

Yes, enter the W2 wages paid to you in the Officer box.  Any other employees that are not officers or >2% shareholders will put their total wages in the Other Employee box.

 

The SCorp cannot deduct home office expenses.  Also, for tax years 2018-2025 Employees cannot deduct job related expenses which includes a home office deduction.  

 

The proper way to get a home office deduction is using an accountable plan reimbursement system as described by @gloriah5200. As mentioned you will not get the deduction on your 2020 return but you can get the plan set up and include deductions on your 2021 return since that is when the reimbursements would have to occur.

 

Here is a link that will help for 2021. 

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Carl
Level 15

Switched from Home&Business to Business: where do I insert my employee wages and other deductions?

@Joseph_ you need to back up here. You're comparing things to the way you did things on SCH C. There is no comparison. It's like being a qualified scuba diver who's learning to fly an airplane and saying "well this is how we change our altitude/depth in the water."  There's just no comparison. Some notes you may find important.

- First you have to close the SCH C business and remove all assets from that business by converting them to personal use on the date you decided to close the business. The SCH C should be marked as "final" when all is said and done. Also note that you can not file your personal 1040 tax return until you have completed the corporate return and all K-1's have been issued. That's because you will need that K-1 from the corporate return, to complete your personal return with. Now to the corporate return.

- Somewhere (I don't recall exactly where) in the process of working through the corporate return, you'll be asked if the business has employees. If you select no, then you will "never" be asked anything concerning employee wages.

- The open date of the business will be the date you originally opened the SCH C business. Doesn't matter if it was years ago either.

- The "incorporation" date of the S-Corp will be one day after you closed the SCH C business.

- Any business assets removed from the SCH C business are a part of your capital contributions to the corporation.

- When entering assets, the in service date for that asset is the same exact in service date you had on the SCH C. Doesn't matter if it was years ago either. (This is how the prior year's of depreciation gets "carried over" from the SCH C business to the corporation)

As a final note, corporate tax returns (1120 and 1120-S) were due March 15. Unless you have a mitigating circumstance (Don't know if you do or not) the late filing penalty is $200 per month, per member. So as it stands right now, you "might" be looking at a $200 late filing penalty for the corporate return.

Above are just some of "the basics" I know concerning corporate returns. Beyond the basics, I can't be helpful at all.

 

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