Client has a service business with six office employees. Client operates business on lower floor of what is essentially an up-and-down duplex. The two floors are connected by a flight of stairs on the inside with a door at the top of the stairs and a landing exiting outside.
The office is fully contained with a full kitchen, bathroom, conference room, three offices,a common work area and a formal office entrance and reception area opening to a large paved parking area. There is a separate (third) "service" entrance.
The s-corp pays the client a monthly rental based on a square footage (1800 sq ft) for the area and has been doing so for several years. This is deducted as rent by his S-corp.
The corp also pays and deducts a pro-rated portion of common costs of utilities based on calculation of power consumption and kitchen/bath usage of office vs. home, and directly pays an allocation of the real property tax. Business has separate renter's insurance on business' assets and directly pays portion of common casualty on structure. The client depreciates the portion of the structure which is allocated to the office usage, but this is a minor amount in comparison to the rental income.
In other words, this is being treated as a separate commercial rental property, although it is part of and "tied" to the owner's residence by a common stairwell. Any problems here? Is it really a deluxe home office? Is direct deduction of expenses by the business allowable or is an accountable expense reimbursement plan in order?
The office is fully contained with a full kitchen, bathroom, conference room, three offices,a common work area and a formal office entrance and reception area opening to a large paved parking area. There is a separate (third) "service" entrance.
The s-corp pays the client a monthly rental based on a square footage (1800 sq ft) for the area and has been doing so for several years. This is deducted as rent by his S-corp.
The corp also pays and deducts a pro-rated portion of common costs of utilities based on calculation of power consumption and kitchen/bath usage of office vs. home, and directly pays an allocation of the real property tax. Business has separate renter's insurance on business' assets and directly pays portion of common casualty on structure. The client depreciates the portion of the structure which is allocated to the office usage, but this is a minor amount in comparison to the rental income.
In other words, this is being treated as a separate commercial rental property, although it is part of and "tied" to the owner's residence by a common stairwell. Any problems here? Is it really a deluxe home office? Is direct deduction of expenses by the business allowable or is an accountable expense reimbursement plan in order?
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