One of my S Corps has in the past, claimed rent expense for use of their 100% shareholder's home office. The shareholder would then report the same amount as rental income. This year while deciding how to handle various items, I found an author's comment on page 5-15 of The Tax Book. The comment says that instead of handling the rent expense/income issue as I always have, that the corporation should set up an accountable plan. The expenses would then be presented to the corp. for reimbursement. Doing it this way would avoid the shareholder having to report the money received as rental income. Certainly an interesting prospect, but I'm a little concerned about the amounts that could be used for reimbursement. Has anyone else followed this method and if so, did you use only amounts that could clearly be shown to be expenses of the corporation? Things like a set percentage of the mortgage interest, taxes, insurance, etc?
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I do
That is the way I expense rent and utilities to my corporation. Since I do not own my home, but rent an apt, it is easy. I journal the expenses each month and the corporation reimburses me for them.
If I owned my home, I am not sure how I would handle that.
Would I be able to split those expenses out each month? Interest and tax portion of mortgage payment? That is where the confusion would come in for me. I do not prepare corporate returns, except my own, and I keep it really simple. I mean, really simple!"I am proud to pay taxes in the United States. The only thing is I could be just as proud for half the money." Arthur Godfrey -
So you're using actual expenses, i.e. you figure the business use percentage of your rent, utilities, and insurance? When you do it the other method, you usually just come up with a figure to use for rent and then on the personal return recognize the rent the corp paid as income. The amount you use for rent is often more than what you actually incur but it doesn't matter because you're claiming the income. When you use the accountable plan, you are only receiving reimbursement for actual expenses incurred. Guess I was hoping someone would give agreement to the idea of using the accountable plan and using the larger amount for rent and still have it be a non-taxable situation.
I'll bet Geithner could figure out a way to do it...hahahaComment
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No doubt!
Yes, I do use the accountable plan for reimbursements.
I wonder if I owned the place, (I plan to buy in the next year) could I get reimbursement at the end of the year for interest and tax percentage via the Office in Home worksheet? Fill it out for reporting to the corporation, but do not file it with my return?
Might be better off renting the office to the corp and claiming the rent. Depreciate and move that income from corp income to corp expense, claim it as income on the Sch E, a nicer tax advantage.
hmmmmmm"I am proud to pay taxes in the United States. The only thing is I could be just as proud for half the money." Arthur GodfreyComment
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You're not allowed to depreciate it if you're the shareholder and it's your home. I think using the oih worksheet and submitting it via the accountable plan is the better method. You don't have to include it as income that way.Comment
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Operating expenses
The method I have used with some s-corps and the use of their home for business purposes is to have an accountable plan and the corporation reimburses them for operating expenses.
Somewhere I was told that operating expenses would not include mortgage interest and real estate taxes. Those have to be deducted on the schedule A.
But any other expenses would be an business expense. I take utilities, insurance, and a portion of any other maintenance expenses of the home.
LindaComment
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