Home office Deduction in 1120, 1120S and 1065

I wonder how a shareholder of a S corporation or C corporation claim home ofiice deduction in 1120S or 1120?. If this can be calimed, will that also be considered a rental or other income to the shareholder?

How that works in partnership (1065)?

Thank you

Reply to
Rashid
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For a corporation: the employer establishes an accountable reimbursement plan and requires the employee to provide his/her own office. The employee provides an accounting of home office costs to the employer and the employer reimburses those costs. If reimbursement = costs, the employee reports nothing and the corporation deducts the expense.

For a partner: The partnership agreement calls for the partners each to provide their own office space. Each partner deducts qualified home office expenses on Schedule E.

Remember, the regular and exclusive use rules still apply.

Reply to
Bill Brown

You used the word shareholder. Assuming the shareholder is an employee paid with a W2, the employee can always take the deduction for business use of home subject to the 2% of AGI limit. If the shareholder is a contractor paid with a 1099-MISC, they take the same deduction, but it is not subject to the 2% of AGI limit, and is not subject to AMT.

Can the accountable reimbursement plan be used to pay for depreciation?

Can the shareholder charge the corporation rent, with depreciation and rental expense on the shareholder's individual Schedule E return? The corporation will deduct the rent as an immediate expense.

Reply to
removeps-groups

I've asked the question before, still don't know the answer.

Can the OIH expense be used to create (or add to) a net loss from the activity, if covered under a reimbursable plan?

-Mark Bole

Reply to
Mark Bole

If you rent an "office-in home" to your employer you can't claim deductions other than interest, taxes, and casualty losses. IRC

280A(c)(6)
Reply to
Richard Di Bernardo, CPA

Sure, but why take a limited deduction from AGI when one can easily get an effective 100% deduction that reduces AGI?

Good question and I'm not sure. I've seen the issue discussed without resolution.

No. See Di Bernardo's response.

Reply to
Bill Brown

Bill,

I believe my post applies to those attempt to circumvent the OIH requirements to get related deductions as rental expenses by renting their dwelling to their employer. This code provision does not disallow a rental deduction to the employer/corporation. It limits the employee's deduction to those previously mentioned, thereby invalidating any tax savings from the arrangement .

In a OIH arrangement, there is no landlord-tenant relationship, lease or rental agreement. The employer has no contract right to occupy the taxpayers dwelling. I would not consider the employees use of a his/ her dwelling as a rental arrangement.

The first requirement of a accountable reimbursement plan is that the reimbursement be for a allowable expense that the taxpayer could otherwise deduct. I don't know of an exception that would preclude a OIH under the the accountable reimbursement plan rules.

I think an accountable reimbursement plan would work for a OIH.

Richard Di Bernardo, CPA

Reply to
Richard Di Bernardo, CPA

Bill,

I am sorry, I misread your post. Please ignore my response.

Your prior post accurately and intelligently explains the OIH.

Richard Di Bernardo, CPA

Reply to
Richard Di Bernardo, CPA

Section 280(A) is really difficult to read. But I found this IRS letter ruling that explains the issue well, and the letter also says why the rule exists, which is to avoid arrangements where part of the employee's compensation is through rent. I have difficulty absorbing that idea because an S corporation with one shareholder still seems just like a sole proprietorship for practical purposes.

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Accordingly, § 280A(c)(6) will bar E-2 from deducting otherwise allowable § 162 trade or business expenses, § 165(c)(1) business casualty losses, and § 167 depreciation. That statutory bar, in turn, explains why there is no place on the forms to deduct those expenses.

What forms are they talking about? One would still use Schedule E, but depreciation allowable and other fields would be blank.

So the effect of this ruling is this. If the property tax, mortgage interest is $300, the employer should pay rent of $300. The employee's Schedule E page 2 will be zero (rent $300, deductions $300). The itemized deductions on the employee's personal return will be reduced by $300 (because they have moved from Schedule A to Schedule E page 2), but the corporation will deduct $300, and the employee's Schedule E page 1 income from K-1 will be reduced by $300, and thus the employee's AGI will be reduced by $300.

Depreciation not being allowed: not a big deal because you have to recapture it anyway, although you deduct it at your marginal tax rate, at recapture at the long term capital gains rate.

Trade expenses. Would these be things like the pro-rated portion of condo fees, gas/electricity, repairs on the business part of the house (things like painting, fixing water pipes in that area, fixing the windows in that area, etc)?

Business casualty losses. What are these?

Reply to
removeps-groups

SNIPPED

MORE SNIPPED

OK, I'll bite - HOW would you justify a shareholder of a corporation (S or C) to get paid as a contractor?

Gene E. Utterback, EA, RFC, ABA

Reply to
Gene E. Utterback, EA, RFC, AB

"OK, I'll bite - HOW would you justify a shareholder of a corporation (S or C) to get paid as a contractor? "

Would the services, if performed by an outsider, be subject to the corporation's control? What skills are required for the job? Are these skills normally applied while working for the corporation. Are these services subject to a special license or legal regulation? A common example is a notary.

Amounts analogous to Section 707 payments.

What if (s)he performs duties outside of the scope of their normal duties, such as paint the office.

Having multiple personalities, like Sybil, would be helpful to sustaining a contractor status. This would address the most significant common law factor or worker classification - the right to control. This right to control is analyzed in a legal context. Like, despite their arduous effort, your clients can't tell you how to prepare a tax return. Likewise, the corporation can't force you to paint the office at 8:00AM on Saturday morning.

People can wear can wear different hats. But mirrors never lie.

Richard Di Bernardo, CPA

Reply to
Richard Di Bernardo, CPA

SNIPPED AGAIN

Even More snippage - hope it isn't too hard to follow.

Here is where I think you and I may be taking separate paths. I would agree with you in regards to the common employee. However, that is not the way I took the original situation. I HEARD than owner of a small company was getting paid as a contractor and I think this is just plain WRONG.

Business owners do many things, composing various disciplines, quite a bit of which may be outside the scope of their daily duties or expertise. However, as owners they are burdened with making sure everything gets done. I hope you aren't suggesting that as an owner of a small tax practice that I can get paid as a contractor when:

1 - I take out the trash 2 - I mop up a spill on the floor 3 - I vacuum the office 4 - I plow snow from the parking lot 5 - I change a lock on the door 6 - I do ANY of the hundreds of things that need to be done around the office through the course of the year which need to be done but for which I've chosen to do myself rather than hire (AND PAY) an outsider.

Again, I agree completely when you're talking about a non-owner employee. BUT for a business owner I think we're treading on very thin ice when we try to pay them as a contractor for doing anything other than what they "normally" do for the company.

Now there may be a legitimate position for a major project - for example, if the owner were to remodel the office or replace the roof, I might be OK with him being paid as a contractor instead of as an employee. But short something major like that, I remain unconvinced of your position.

There has been a lot of snippage, especially by me, but as I recall the OP didn't include a LOT of details - just a blurb about an employee/stockholder getting compensated on a 1099, or maybe I missed something.

Gene E. Utterback, EA, RFC, ABA

Reply to
Gene E. Utterback, EA, RFC, AB

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