Welcome and thanks for your question!
As far as deducting the home office expenses, you have a few options, but the best, XXXXX XXXXX efficient option is for the S corp to reimburse your wife for the expenses under an accountable plan. Your wife should create an accountable plan document (here is a sample
) and create an expense reimbursement form
that your wife can use every month to submit her reimbursement. I suggest having two sections on the form - one for non home office expenses (postage, mileage, office supplies, etc) and the second to calculate the home office reimbursement. You would want the form to show the business use percentage (home office square footage/total home square footage). You would list all home expenses (mortgage interest
, real estate taxes
, utilities, etc.) on the form and multiply by the business percentage to compute your monthly reimbursement.
Please note that you would need to reduce your Schedule A deductions
on your 1040 by any amounts reimbursed for mortgage interest and property taxes
If the improvements were exclusively for business use (e.g. a separate entrance for the office), you may deduct them, but depending on the nature of the improvements, they will be subject to depreciation
rather than immediate expensing.