Home Office - S Corporation

[taxmancometh]

S Corporation is owned by a husband and wife (62.5% and 37.5% respectively). They were advised by their former tax preparer to take the office in home deduction on page 2 of the Sch. E (using 8829 to figure their expense) which they have been doing. According to TMI page 19-12, the shareholder's use of the home is to be a deduction on Sch. A as an employee business expense and subject to the 2% limitation.

The question is, am I understanding this correctly that they have not been deducting these expenses properly all this time and they should only be taking them as an employee business expense on Sch. A?

Thanks for your help.

[DTS]

S-corp

If they take a wage from the corp, take it. If they did not, I don't believe they are allowed the deduction. Check out TTB SB3-13, first column.

D

[Bucky]

schedule A Misc 2% deucts not page 2 E. If they were a partner they could if the partnership or LLC agreement stated as such.

[geekgirldany]

If they are shareholder-employees, what I do is tell them to write a check for prior year expenses in the current year. So the S-Corp writes them a reimbursement check for the prior year 08 OIH expenses and it will be deductible for the current year 09 (for example).

I tell them to put in the minutes that this was done and in future years they will be reimbursed yearly, quarterly, monthly... whichever they decide. I also do not include home mortgage interest or property taxes in the calculation.

Write down what you tell them and make sure they understand. Had one this year reimburse himself.... but included his house payments in there.

[Donanita]

Oih

I have a office in my home and it is in my minutes that the Corp will reimburse me for the % of the electric & gas. I also have a statement in the minutes that the milage I turn in at the end of every month will be reimbursed for the business use of my auto.

[taxmancometh]

Thank you. This is extremely helpful!

Would they still include depreciation in with the other expenses (utilities, insurance, etc)? Are there any other expenses, such as mortgage interest and real estate taxes, that would not be allowed to be considered in the calculation of the total OIH expenses by doing it this way?

Also, what is the appropriate deduction line on the 1120S to put the OIH expenses paid?

Good advice. I will make sure to spell it out to them in written form.

If they are shareholder-employees, what I do is tell them to write a check for prior year expenses in the current year. So the S-Corp writes them a reimbursement check for the prior year 08 OIH expenses and it will be deductible for the current year 09 (for example).

I tell them to put in the minutes that this was done and in future years they will be reimbursed yearly, quarterly, monthly... whichever they decide. I also do not include home mortgage interest or property taxes in the calculation.

Write down what you tell them and make sure they understand. Had one this year reimburse himself.... but included his house payments in there.

[geekgirldany]

I do utilities only. Most of the time the mortgage interest and property taxes can be written off on the Schedule A. On depreciation at least for a S-Corp I have never done it. If the home is ever sold it would have to be recaptured... atlest the "normal" way on OIH Form. So I have them do only utiltiies

[taxmancometh]

OK. That was my feeling, too, however the TP (under a previous preparer) has been taking depreciation as well as taking the deduction in the wrong place.

Thanks for all of your help! Hang in there...the 15th is coming up too fast.

[oceanlovin'ea]

Operating expenses

It is only the operating expenses that they can be reimbursed for by the S corp.

That would be utilities, insurance and any other "operating expenses".I have one client that includes her lawn maintenance in operating expenses. She is 88years old and can't take care of that herself any more. But must keep property looking good for clients that come to her.

But not mortgage interest, real estate taxes or depreciation.

Linda

[Davc]

It is only the operating expenses that they can be reimbursed for by the S corp.

That would be utilities, insurance and any other "operating expenses".I have one client that includes her lawn maintenance in operating expenses. She is 88years old and can't take care of that herself any more. But must keep property looking good for clients that come to her.

But not mortgage interest, real estate taxes or depreciation.

Linda

The pub specifically states that lawn care isn't deductible as part of "business use of the home."