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Stephen G.
Stephen G., Sr Income Tax Expert
Category: Tax
Satisfied Customers: 6699
Experience:  Extensive Experience with Tax, Financial & Estate Issues
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Evening. I have a question about a corporation paying rent.

Customer Question

Evening. I have a question about a corporation paying rent.
Submitted: 1 year ago.
Category: Tax
Expert:  Stephen G. replied 1 year ago.

What's the question?

Customer: replied 1 year ago.
A corporation (incorporated in Delaware with license to do business in NY, FL and CA) is owned by an individual. Can that corporation pay rent directly without it being considered compensation so that individual doesn't have to declare that rent as income? (owner will exclusively work from home)
Customer: replied 1 year ago.
I'm aware of the section 280A and safe harbor stipulations of revenue ruling 2013-13
Expert:  Stephen G. replied 1 year ago.

Who is the rent being paid to?

Customer: replied 1 year ago.
It's an apartment building (400 residence building)
Expert:  Stephen G. replied 1 year ago.

Is the rent being paid to the Corporation's owner?

What is the rent for & does it benefit the owner personally?

Customer: replied 1 year ago.
Rent would be paid directly to the apartment management corporation so no money would go through owner's hands. He will live in apartment but it's also his principal place of business
Customer: replied 1 year ago.
Just doesn't seem right to have the rent be considered income/compensation to owner and then only be able to take a 1500$ deduction each year
Expert:  Stephen G. replied 1 year ago.

Well, you don't have to use the "safe harbor" rules.

However, you do have to make a reasonable allocation of business use verses personal use.

Just because a check is made out to you doesn't mean it is recorded as income to you.

If you are paying the rent to the Apartment Owner, then the corporation could reimburse you for it's share of the rent expense and that would be an expense on the books of the corporation and wouldn't appear anywhere on your return as you would file expense reports with the corporation for all of your expenses to be reimbursed and the portion of the apartment used for business would just be one of those expenses.

I would, however, make sure that I had good documentation as to how I determined the business use percentage, keeping in mind that old accountant's saying "pigs get fat, hogs get slaughtered".

Customer: replied 1 year ago.
Ok that makes sense.
Expert:  Stephen G. replied 1 year ago.

The bot***** *****ne is why the so-called "safe harbor" was developed is because like automobiles, this office in home area has been widely abused and realistically most homes don't get used for business purposes anywhere near what has historically been claimed; so now we get more rules, etc.

Please remember to rate my response as that is the only way we receive credit for our work.

Thanks for using JustAnswer.com

Steve G.

Customer: replied 1 year ago.
This is a business that has employees and operates in Asia, France and the US. The owner will be using the NY apartment as his principal place of business as they are not renting office space in NY for the time being.Thank you for your analysis!
Expert:  Stephen G. replied 1 year ago.

I understand. However, the IRS takes the position that the facility is residential in nature; the owner is living there; sleeps there, eats there; relaxes there; entertains there, and also does substantially all of his/her work there. Further, a typical office does not have a kitchen, although most have sinks, tables, chairs, refrigerators, microwaves); does not have bedrooms; so it's up to us to come up with how each area of the apartment we are using for business is used; do we meet clients there? do we store inventory there (if applicable), do we maintain a desk & office equipment there? do we have any employees working there? Whatever, it is evaluated on an individual basis as it applies to a particular business use.

Please remember to rate my response as that is the only way we receive credit for our work.

Thanks for using JustAnswer.com

Steve G.

Expert:  Stephen G. replied 1 year ago.

I see that you have had a chance to read my latest comments.

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Thanks very much.

Steve G.

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