What can an S-corp use for home office deductions?

What about for an s-corporation owned by 2 people, 50% owners? Can one of the individuals use the home office deduction? The corporation reimburses us for our expenses, (Cell, Internet, mileage etc).  My partner is the Secratery of the Corporation and he reimursed himself for his home office. We did not talk about this he just did it, which is a bigger issue that I don't want to discuss here. His mortgage is 3 times as much as mine so his home office deduction is pretty high. I don't even have a home office so don't take a deduction. We don't have an actual office either. So is it legal if you are a partner in an s-corp? One CPA told me that he wasn't sure it was legal, and that if it was the corporation would have to agree on an amount of rent to pay for it. Then he would have to declare that as rental income.

It sounds like you are saying that if you setup a plan and remimburse him then he can do it and not declare it. Are all expenses of the house reimbursable, interest, taxes, utilities, etc? Wouldn't the corporation have to agree on what it would pay for the rent?

Thanks for any help.

Don

Yes corporation can set it accountable plan and reimburse.  However, corporation needs to decide about this, or corporation have to agree about this that they want accountable plan or not, or they want as a rent.  As being shareholder (it depends on the operating agreement that either both partner need to make decision or one).  who is the cheif executive officer in the corporation, that person can also make decison some time. 'who make decision depends on the operating agreement of the corporation.

If you read the rules of home office under the link, it is clear that you can have an home office only, if you are using it regualarly and exclusive. he can't take entire home, it suppose to be reasonable and the area which is being used regularly.

An accountable plan: To qualify, your employer's reimbursement must include all of the following.

1. business connection: the expense must have a business connection. Expenses incurrd by an employee while doing his or her job usually have such a connection.
2. Proper substantiation: the employee must adequately account to the company for expenses within a reasonable time. Adequate accounting means completing expense reports and providing the company with recipts, invoices, and other documentary evidence of the expenses.
3. Return of the excess reimbursement: the employee can't keep unused advances and must return to the company any excess reimbursements within reasonable time.

It is good to keep accountable plan in writing in case of audit.

Business use of Home: Calculate the "business use percentage" of your home office. List each item of expense paid during the month, such as real estate taxes, homeowner insurance, electric, mortgage interest etc. As an S-corp, total up all the expenses listed on the form and write a check to you (employee) from corporation.

Fill out the worksheet in 2010 Pub 587 "business use of your home" Page 25 (you don't have to fill this out, it is just easier and more clarification), Then submit this worksheet to your corporation for re-imbursement. The S corporation record office expense deduction for the check re-imbursement. Don't record home depreciation.

Example: Suppose you fill out the worksheet as your home office is 10% to the total home. Assume following expenses (these are 10% for the total). and submit to the corporation.

• Real estate taxes 400
• Insurance: 100
• Electric: 200
• Mortgate interese: 720

As corporation receive above report, it will record these expenses accordingly and write a check to the employee (you)

• Go to the quickbooks, write check window, select name/employee, the write $1420 and go to the account and select each above account accordingly with each expense that is taxes: 400, isnurance: 100, eclectric: 200 and interest: 720

I hope it solved the question. If it still not the answer, then may be I don't understand the question. Good luck and I hope you will find your answer.

Thanks for the quick reply. That answers the question, but I have 2 simple follow ups.

If we use the accountable plan and reimbursment then whatever he gets reimubursed he has to exclude off his deductions for mortgage intereste for his personal taxes right? Then it almost nets out to zero for him but hurts me more because his home mortgage is much higher than me and that money is going to him from corporation rather than decreasing his taxes.

2. Can the corporation decide we are going to only allow a flat amount for the reimbursments not anything above that, because of the inquatiry between his and my expenses?