Can home office expenses be taken by an employee of an SCorp with accountable plan?

[15Gornzz51]

1] Since the owner of an S-Corp is also an employee of the S-Corp, can the S-Corp have an accountable plan (a formal reimbursement arrangement/agreement) that allows the employee to receive tax free reimbursements?

Does the accountable plan allow a company’s employees to receive tax-free reimbursement for business expenses paid from personal funds, and help S-Corp owners properly track expenses and reimburse themselves for business-related costs tax-free?

2] If the employee uses part of their home (625ft2/3200ft2 = 19.5%) regularly and exclusively as a home office for the S-Corp, is the following correct?
A] The employee can be reimbursed tax-free from the S-Corp for the 19.5% of mortgage interest, insurance, real estate taxes, utilities and depreciation. Tax-free meaning the employee does not have to report these payments as income on his personal 1040 return.
B] The S-Corp reports the payment to the employee as an expense on the 1120S tax return.
C] Would the S-Corp report the payment on 1120S page 1 line 20 as Other Deductions?
D] Since the employee is getting reimbursed for the depreciation, does the employee only need to keep a depreciation schedule for the purpose claiming the yearly depreciation expense from the S-Corp?

[TaxGuyBill]

Yes to all of that.

[Rapid Robert]

You should read up on the rules for accountable plans, it's in one or more of the IRS pubs (the one on business expenses, or one of the Pub 15 series). There are some time limits and paperwork involved, such as written corporate policies and procedures. It wouldn't hurt to have someone other than the owner/employee review and approve the expense reports submitted.

You don't mention the nature of the S-corp's business, but just on general principles, regular and exclusive use as an office in home of 20% of a 3,200 sq. ft. residence is on the high side -- (625 sq ft is about the size of a one bedroom apartment), so you might want to do some due diligence. As a simple benchmark, the simplified method for deducting OIH for a Schedule C is limited to 300 sq ft.

Also, for a sole proprietor, there are strict rules that prevent an OIH from creating a net loss from the business. I don't how whether/how those apply to this scenario, because the whole concept is something that I see as kind of sneaking in under the radar, so to speak -- it's not like the IRS has printed any guidance on this to my knowledge (would be glad to be shown wrong here).

I think in general there is always going to be extra scrutiny whenever there is a tax position that turns ordinary personal expenses into deductible business expenses. A much less aggressive position would be to have a reimbursement policy that was similar to the simplified OIH method -- $5/sq ft. Much less paper work,, and probably easier to defend.

"does the employee only need to keep a depreciation schedule for the purpose claiming the yearly depreciation expense from the S-Corp? "

No. The schedule is also needed so that when the home is eventually sold, Sec. 1250 gain can be properly calculated and taxed, at up to 25%.

"owner of an S-Corp is also an employee of the S-Corp, "

I would strongly recommend that there be reasonable compensation paid to this employee.