Office In Home, Never Seen This

[geekgirldany]

Got a new customer who has a S-Corporation. Last year another accountant prepared the 2005 taxes. On the customer's individual return the accountant calculated a OIH deduction. He then put it on Schedule E as a passive loss and this was deducted off the K-1/S-Corp Income as was a Section 179 expense. No accountable plan and no checks reimbursing shareholder (my customer). No 2106 on Schedule A... which is what I expected.

Have you guys ever seen it done this way? I've never heard of it. Customer said he just provided the accountant this information.

I'm not sure what to tell him to do about his. From other threads I've posted in about OIH before I think he could still reimburse himself now for the 2006 expenses. He just won't be able to deduct until 2007. Does this sound right?

[Joe Btfsplk]

Schedule A deduction--not schedule E

Got a new customer who has a S-Corporation. Last year another accountant prepared the 2005 taxes. On the customer's individual return the accountant calculated a OIH deduction. He then put it on Schedule E as a passive loss and this was deducted off the K-1/S-Corp Income as was a Section 179 expense. No accountable plan and no checks reimbursing shareholder (my customer). No 2106 on Schedule A... which is what I expected.

Have you guys ever seen it done this way? I've never heard of it. Customer said he just provided the accountant this information.

I'm not sure what to tell him to do about his. From other threads I've posted in about OIH before I think he could still reimburse himself now for the 2006 expenses. He just won't be able to deduct until 2007. Does this sound right?

Method No. 1.
Did he give himself a W-2. If so, he should have deducted it on Form 2106 and Schedule A.
Method No 2.
If his corp reimbursed him, in dollars, for the expense of maintaining a home office, it would be an S-Corp expense--deductible by having effect of reducing passthru income.THE IRS MAY DISAGREE
Method No 3:--Incorrect method
Claim it as passive loss on Schedule E--this seems to be 'creative accounting'

[geekgirldany]

Thankfully yes he did give himself W-2 on both years. What I would like to do is an accountable plan with the S-Corp reimbursing the shareholder/employee. But I am not sure if it is correct to reimburse him now for 2006 expenses. I feel like it is too late. But on another thread a person said it was common for companies to reimburse employees in Jan and Feb in the following year.

[jerome]

S corp shareholders do not deduct unreimbursed expenses on Schedule E. Partners of partnerships do.

That is right out of the Schedule E instructions.

The previous year accountant has gotten this rule mixed up. An amended return should be filed to move the expense over to Schedule A where it belongs.

[Gretel]

Geekgirldany,

I know your question hasn't been answered yet and I don't have the answer either. I would think if it is close enough to year end you still could reimburse for prior year and I agree with your conclusion that the corporation then can deduct in 2007.

[geekgirldany]

Thanks Gabreille. I am trying to find some detailed infomration on accountable plans. I was looking at the reasonable period of time requirement. One part of that is "The Employee adequately accounts for expense within 60 days of time the expense was paid or incurred". Well the shareholder/employee has adequately accounted for the expense all year. He keeps a spreadsheet. He just hasn't been reimbursed for it. I think I will go ahead and tell him to reimburse in 2007 for 2006 expenses. I think he would rather do that then not get the deduction at all. I know he made to much to get the unreimb. employee expenses on Schedule A .