Friday, June 1, 2012

Home Office: Corporations

Please remember that we are answering the following question on this post:

What if I have a corporation that does not have a formal office space, can I take an expense for the business use of my home (office)?

Unfortunately there is not a clear cut yes or no answer to this question. However, there are a few interesting ways to get the same or similar expenses on your personal return (potentially).

Sometimes in the tax code, it seems like we are back in the wild west, for that reason I will introduce you to the good the bad and the ugly...

The Good:

Corporations pay rent to those persons, or entities whom they occupy space from. With that in mind, under the right set of circumstances, it would not be out of the question for the Corporation to pay an individual for the exclusive use of a space for business purposes. There are a few pitfalls in this strategy, so before you go paying yourself rent, please contact your accountant or attorney to go over the legal and business ramifications of this decision. However, if your Corporation uses the space and would like to reimburse you for that use, this may be the best tax position for both the individual and business.

The Bad:

Corporations have employees, often the business owner happens to be an employee of the business entity. For this reason, if the business owner were an employee and had to use his home office exclusively for the needs of the business as an employee and was not reimbursed for this use. This employee may be entitled to a deduction for unreimbursed home office expenses on Schedule A. The amount of the deduction would be limited by 2% of AGI, but sometimes a reduced deduction is better than no deduction at all.

The Ugly:

This plan is not advisable, and has been shot down more times in court than I would be comfortable recommending. But, some Corporations have tried to introduce an expense reimbursement plan that would reimburse employees for specific expenses. One of the expenses they included in this plan was a reimbursement for business use of home office expenses. This plan is riddled with problems, and is not a good idea, but it has been tried in the past. 

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