Taxpayer is sole shareholder/employee of Sub S operating building inspection service out of his home. Taxpayer has a written accountable plan which reimburses him for the business use of his truck at standard mileage rate. The plan also reimburses him for a portion of the cost of his home (approx 10% based on sq footage) which he uses exclusively for the business for utilities, taxes, insurance, ect). Are these payments deductible by the corp and not taxable to him personally? For a C corp I assume the answer would be yes, but do we have problem with these items being treated as "taxable fringes" since he is a more than 2% shareholder in a Sub S ? TMI discussion on page19-11 suggests that if personal services are involved then shareholder must pick up the office space reimbursement as taxable rental income under Sec 280A, but the "rent expense" would still be deductible on the corp and via the pass thru nature of Sub S tax treatment wind up offsetting the "rental income" on his personal return. If this is true, then it would seem there is no reason to reimburse him for these expenses, since the tax effect would be zero. Do we have a similar problem with the truck mileage reimbursement? If the corporation were to buy a new truck for the business, could we get by with only charging the shareholder/employee for the "personal use" based on the cent-per mile rule under the annual lease value method? I would appreciate any help you can offer. Thanks
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Home office
I think you are misreading TTB page 19-11 and the example.
There are differences in "reimbursement of expenses" under a plan (no 1040 reporting as form 2106 zeros out), claiming unreimbursed expenses on form 2106 (Sch-A) and paying "rent income" (Sch-E) to the shareholder.
S-corp payment of "reimbursement of expenses" under a plan is deductible by the S-corp and not taxable or reportable by the shareholder unless the shareholder wants to claim additional expenses on form 2106. Use the employee worksheet in pub 587 if the home meets the requirement for deduction and submit for reimbursement to the S-corp.
The percent of ownership of the shareholder has nothing to do with this tax situation as with the truck mileage you are only reimbursing deductible S-corp cost incurred by the shareholder.
Code §280A as they quote in the example is referring to the S-corp payment of "rent" to the shareholder which would be deductible by the S-corp and taxable income to the shareholder. The example also points out that home expenses are not deductible on Sch-E. -
Vehicle Use
If the S-corp ownes the vehicle the S-corp gets a 100% business use deductions (§179 and/or depreciation subject to limitations) if the employee-owner has added to his W2 gross (subject to payroll taxes) the fringe benefit as computed using the "annual lease value" table (less any reimbursement from the shareholder).
The cents-per-mile method for the W2 gross is limited to vehicles owned by the S-corp costing less than $15,300 driven at least 10,000 miles.Comment
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