S CORP Home Office Reimbursement Plan Question

No. Unfortunately, the IRS revenue procedure that created the simplified method for the home office expense deduction specifically prohibited using the simplified method for home offices that are reimbursed under reimbursement plans. 

See page 5 of IRS Revenue Procedure 2013-3 by clicking here.

OP's related Q:
<a rel="nofollow" target="_blank" href="https://ttlc.intuit.com/questions/3423160-s-corp-owner-first-year-doing-taxes-home-office-expense">https://ttlc.intuit.com/questions/3423160-s-corp-owner-first-year-doing-taxes-home-office-expense</a>

Thank you TurbokTaxPhillip and SweetieJean!  I just have a follow up question if I may, and the home office reimbursement is the only part I'm struggling with in completing my S Corp tax filing.  This first year in business, my LLC (taxed as an S Corp), had revenue of $7,101, but an NOL that included the home office reimbursement to myself.  I'm doing all of this in quickbooks and I've had two conflicting answers from accountant friends that provide tax preparation.  I'm told that the home office reimbursement is not allowed as a deductible expense for my business we had an NOL.  Is that correct?  Is there anything else you think I'm missing or doing incorrectly?  Is there a scenario, especially in year one of operating, that it would be more beneficial for me to not be reimbursed by my company and take the deduction on my personal taxes?  I will deduct the mortgage interest, real estate taxes, and hazard insurance on my personal taxes by the amount I submitted on the reimbursement.  Thank you all so much for your help, I really appreciate it!

Sorry, in my last question I said something confusing.  At the end of the question, I meant that if I take the home office reimbursement from the company,  I will deduct the mortgage interest, real estate taxes, and hazard insurance on my personal taxes by the amount I submitted on the reimbursement report.

S-Corp reimbursement plans can turn into a very convoluted subject. I started writing a response that became a bit too lengthy. So, I decided that I should probably ask a few questions first before launching into a long explanation:

1.) Did the S-Corp pay you a wage?
2.) To clarify, is the S-Corp is reporting a net loss due to the reimbursement, or do you have a separate NOL on your personal return (either from this year or carried forward from other years)?
3.) What expenses did you include in the home office expense that the S-Corp reimbursed you? (i.e. mortgage interest, taxes, utilities, etc.)

Assuming you respond tonight, I will have a response to you tomorrow evening.

Thank you again for helping me!  My wife and I are the shareholders and own 50% each in our luxury home cleaning business.  We did not pay ourselves a wage or any distributions this year as we had a net loss, many post-opening expenses, and only opened on 6/1/2016 (I know we will need to pay ourselves a wage next year to be complaint with the IRS in regards to S Corp rules).  

We had a small net loss before including the vehicle reimbursement expenses, and the home office expense will only increase that loss further.  

My wife and I have never had a NOL on our personal return(s) before.

Our office is 14.9% of the total square footage of the home we own.  It's a loft in our house used exclusively as our business office.  I included the 14.9% of mortgage interest, real estate taxes, HOA dues, gas, electricity, internet, and sewer and water.  Hopefully I didn't miss anything.  I have not messed around with depreciation at all, unless needed,  as I do not want to complicate things when we sell our house in the distant future.

Not to make anything more complicated, but we do have a specific section in our garage that is exclusively used to store our chemicals, cleaning equipment, vacuums, and 1 large carpet extractor.  Its 50 square feet, but I haven't considered researching this as a separate deduction unless you would recommend otherwise.
  
Thank you so much again for your help and let me know what other information I can provide

I recommend that you do not claim the home office expense reimbursement as a deduction for your S-Corp this year for these two reasons:
 
1.) Because of limitations imposed by IRC section 280A on businesses renting real estate from employees, the only legitimate way to take the home office expense is under an employee reimbursement plan (without a W-2, the reimbursement plan would not be considered valid).
2.) Your CPA friend is correct about regarding limiting the home office expense if the S-Corp has a loss. There is a tax court opinion where the court sustained the IRS' disallowance of a S-Corp deduction for home office expense reimbursements because the S-Corporation had reported net losses for the years that were audited. Since there is a loss before considering the home office expense reimbursement, it is likely that you would have the expense disallowed if the IRS ever did examine your S-Corp return for this year.
 
On the issue of depreciation: The tax code requires the recapture of allowed or allowable depreciation when you sell real estate. This means that the IRS can force you to claim recaptured depreciation income when you sell your home even if you did not take the deduction. When you start taking employee reimbursements through an accountable plan, make sure you are including depreciation into the calculation.

Accountable Plan: <a rel="nofollow" target="_blank" href="https://www.irs.gov/publications/p463/ch06.html#en_US_2016_publink100034114">https://www.irs.gov/publications/p463/ch06.html#en_US_2016_publink100034114</a>
Cunnigham v. Commissioner: <a rel="nofollow" target="_blank" href="http://www.ustaxcourt.gov/UstcInOp/OpinionViewer.aspx?ID=1448">http://www.ustaxcourt.gov/UstcInOp/OpinionViewer.aspx?ID=1448</a>

Ok.  That makes sense.  While setting up the business I made an "official" Accountable Plan Document outlining the details of the home office reimbursement as I did not want to rent the space to the business and have to report the income.  

I will NOT claim the home office expense reimbursement as deduction for the S-Corp.  Will I still be able to claim the home office deduction on my personal taxes as a business related expense.  If I can, do you think I should claim separate deduction for the space I use in my garage I use exclusively for storing my chemicals, small cleaning equipment, and a large carpet extractor?  However, I'm fine with not messing around with this storage space as my CPA friends were unsure and I don't want to set off any red flags with the IRS.  Thank you so much again for taking the time out of your day to answer these questions!

I wouldn't claim the home office expense unless the S-Corp has income.

I wouldn't use the garage either. If the garage was a separate structure, some professionals might argue that the income rules do not apply. However, in reading the tax court case on this issue, it appears that the income rules would apply no matter what if the garage is on the land where the S-Corp shareholder lives.

Ok, I won't claim the office expense at all for this year. Just so I know for my second year, If I only end up with a small income like $750, but adding in the home office expense puts me in the red, would I still not claim it again.  We are about to have our 3rd child and we might slow down the business for awhile and might not end up with much income next year.  If you don't have time to answer, I completely understand.

I actually figured out the answer to this question.  I promise I have no more questions.  Thank you for everything.

Hi.  I know this is an old thread, so I hope people are still paying attention to it.  I am a single person s-corp and have an accountable plan and am using it to claim my home office.  How should this be reported on my 1120S? Turbo Tax puts

Other deductions (attach statement) . . . . . . . . on line 19 of the 1120. 

So my question is how should I break out the expenses for the office on the additional information statement.  Currently it shows as "Reimbursed Employee Expenses", but I don't think that will be considered adequate.  Should I break it out by each component (Interest, Tax, Insurance, Depreciation, HOA Fees).  Utilities, internet, and other items that are reimbursed are already broken out. 

Finally, should corporate cell be listed as it own item, lumped in with utilities, or as telephone?

Thanks!

I am in the community for the first time. I am doing some research on employee home office expenses reimbursed by the employer. The question is whether depreciation needs to be included in the reimbursement? Some say since depreciation is not an out-of-pocket expenditure it should not be reimbursed. This may go against the allowed or allowable concept. The theory is the depreciation is not a DEDUCTION but a REIMBURSEMENT and therefore does not come under the allowed or allowable rules. The employee chooses what expenses to submit for reimbursement and simply doesn't include the depreciation. What are your thoughts? Thanks for any help in advance.

Unreimbursed employment expenses is no longer deductible, so if your employer is reimbursing you any of your home office expenses, that is great.  

The reimbursement is not taxable, nor is it reported on your return.  Your employer can determine what they want to reimburse for, but they are not required to reimburse anything.

Thanks for your response. I appreciate it. The reason for the home office (I know it is a small number) is auto mileage deduction. If a person has a home office the business miles start when the person leaves home not when they get to their first destination. Same with coming home at night. The question is can the company reimburse all expenses EXCEPT home depreciation (company policy?) and not have to add depreciation recapture (allowed versus allowable?) when the home sells. I would really appreciate your help with this issue.

LLC had a profitable year. I was renting in SC so I will deduct that payment from the LLC taxes.

I am using part of my home as an office in NY. How do I claim the partial depreciation and partial expenses (RE tax, mortgage interest)? In my personal tax return or the LLC's return?   

One last question, Do I have to file a State Tax Return for NY or SC or Both? How do I apportion between the

2 if filing in both states? 

Probably on your Schedule C, Profit and Loss From Business.  If you are a single member limited liability company (SMLLC), from a tax perspective (and not a legal perspective, only a tax perspective), the IRS disregards your entity for tax purposes.   By "disregarding your entity," the IRS is essentially saying that a SMLLC will complete a Schedule C, and include all gross receipts and expenses on a Schedule C. 

In TurboTax online, you enter your SMLLC income in the Income & Expense section.  Scroll down the page to Self-Employment, click on the drop-down arrow if necessary, and on the pages that follow, begin entering your income and expenses. 

Because your LLC had a profit last year, your net profit on your Schedule C will transfer to Schedule 1 and then transfer to your Form 1040.   TurboTax will also generate a Schedule SE, Self-Employment Tax.  

Because it appears that you were a part-year resident of SC and NY, you will likely have to file returns for both states.  When you begin your federal return, in the My Info section of TurboTax online, scroll down to the bottom on the Personal info summary page, and in the subcategory Other state income, make sure you select SC as the state where you earned income (assuming you earned income in that state). 

If NY is your resident state now, when you are ready to begin your state returns, start with SC first.  When you complete your NY part-year resident state return, you will be asked to enter taxes that you paid to SC.  Thus, in order to know the full extent of you SC tax liability, start preparing your SC first, then move to NY.

Regarding apportionment, as you move through the SC and NY returns, you will enter that portion of your income that derived from SC sources and NY sources.  Both state returns may likely start with all income transferred from your federal return, but because you were a part-year resident of each state, you will enter that portion of your total income that was derived from each state.  Each state will only tax you on income derived from sources within that state.  

@wdegaude

Thank you so much for your response, George!

Forgot to explain that my LLC selected to be a Small Business Corporation which requires to file a 1120S.

BTW, I am using the Intuit Business software.

Would this change your answer?

It does change the answer some.  @GeorgeM777 is correct about filing both states and that will be necessary for both the 1120S and your personal return.

In regards to your home office, the S-Corp should pay you rent for the use of the space and count that as rent expense on the 1120S.  Then, on your personal return, you can file a Schedule E to report the rental income and take the appropriate percentage of expenses for the space.

See S-corp home office for more details.

@wdegaude