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Ed Johnson
Ed Johnson, Tax Preparer
Category: Tax
Satisfied Customers: 10760
Experience:  GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee
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My husband and I have an S corporation business. How much can

Customer Question

My husband and I have an S corporation business. How much can we deduct on our taxes for using our home as the place we do business?
Submitted: 8 years ago.
Category: Tax
Expert:  Ed Johnson replied 8 years ago.

Dear Pilgrims,

 

As long as you are not renting the space to the S-corp, you can take home office expenses.

 

Please see this publication for details.

 

http://www.irs.gov/pub/irs-pdf/p587.pdf

 

Essentially you will be able to deduct a portion of utilities, taxes, insurance, and depreciate a percentage use of the office as part of the FMV of the home.

 

this is subject to a 2% floor for schedule A and income limitations.

 

NOTE: as s-corp owners you are required to pay yourselves a W-2 wage reasonable for the amount of business revenues and level of work as corporate officers,

 

http://www.irs.gov/pub/irs-pdf/p587.pdf

 

Ed Johnson and 2 other Tax Specialists are ready to help you
Customer: replied 8 years ago.
How do you figure out what the cost of the office space in the house is, and how do you figure out the depreciation percentage?
Expert:  Ed Johnson replied 8 years ago.

Dear Pilgrims,

 

You do not do a cost. YOu are not renting it out to the S-corp.

 

What you do is start with the percentage of floor space your office is of the entire house.

 

Say for example your office is 10 X 12. that equals 120 square feet.

 

If your house is 2400 square feet, then you create a percentage of that. your office is 120/2400 ths of the total house. (happens to be 5%).

 

So you can take 5% of:

 

1. utility charges

2. rugs

3. depreciation

 

In a nut shell. If your home's FMV today (day you put the space to use as an office) is 500,000 you can depreciate 5% of that 500,000 to arrive at a depreciation expense. Use MACRS convention for 15 year property. The depreciable basis in my example is 25,000.

 

The publication to which I gave you the link provides several descriptions of other expenses you can take for your home office.

 

That publication also describes in detail how to do figure the percentages.