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Lev, Tax Advisor
Category: Tax
Satisfied Customers: 29774
Experience:  Taxes, Immigration, Labor Relations
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I am reseraching home office deduction greater than 2%

Customer Question

I am reseraching home office deduction for a greater than 2% shareholder.
Submitted: 2 years ago.
Category: Tax
Expert:  Lev replied 2 years ago.
home office deduction is not allowed fro shareholders - but that is deduction for employees.If you are an employee - then deduction might be available.
Customer: replied 2 years ago.
I already am aware that an employee S-Corp shareholder needs to take the home office deduction as an itemized unreimbursed employee, subject to the 2% haircut. Looking for support to have the S-Corporation provide a reimbursement to the shareholder. Question-is the reimbursement of all indirect expenses eligible? Of coure, subject to income from S-Corp, I understand.
Customer: replied 2 years ago.
Is this your final answer?
Expert:  Lev replied 2 years ago.
Sorry for delay.
An employer - S-corporation in this case - may reimburse to the employer for employee business expenses.
That is reimbursements to the employer - not reimbursement to the shareholder. The fact that the employee is also a shareholder - is not relevant here.
That includes reimbursements for the home office.
Same requirements are for the employee business deductions and reimbursements.
Unreimbursed employee business expenses are deducted on schedule A.
But when expenses are reimbursed by an employee - these expenses are NOT included into wages.
If you reimburse employees for job related expenses - such reimbursements might be excluded from taxable wages if paid under accountable reimbursement plan.
In order to qualify as an accountable plan, your reimbursement or allowance arrangement must require that your employees meet all three of the following rules:
1. There must be a business connection to the expenditure. This means that the expense must be a deductible business expense incurred in connection with services performed as an employee. If not reimbursed by the employer, the expense would be deductible by the employee on his/her 1040 income tax return.
2. There must be "adequate" accounting by the recipient within a reasonable period of time. This means that your employees must verify the date, time, place, amount and the business purpose of the expenses. Receipts are required unless the reimbursement is made under a per Diem Plan.
3. Excess reimbursements or advances must be returned within a reasonable period of time. Reasonable depends upon facts and circumstances.
Reimbursements not made under accountable reimbursement plan must be reported as wages even if paid with a separate check.
If your employer's reimbursement arrangement does not meet all three requirements, the payments you receive should be included in the wages shown on the Form W2.
Regardless if reimbursements are paid under an accountable reimbursement plan OR deduction is claimed on schedule A - there are certain requirements for home office deduction.
See here
Same requirements for employees of S-corporation.
Let me know if you need any help.