Home-Ofﬁce Deduction If You Operate as a Corporation
What does the IRS audit manual say about the home ofﬁce for an individual who operates his or her business as a corporation?
You will be interested in two boilerplate explanations from the Internal Revenue Manual that examiners use to explain why the IRS is denying the home-ofﬁce deduction:
- We [the IRS] have disallowed your deductions for office-in-the-home expenses because you have not established that it was for the convenience of your employer. Voluntary, vocational, or incidental use of part of your home in connection with your employment does not entitle you to a business deduction.
- If you rent all or part of your residence to your employer and use the rented portion when performing services for the employer, you cannot deduct home office expenses.
If you want to avoid the disallowances above and achieve a full deduction for the home ofﬁce, follow these directions:
- Make your corporation write you a letter stating that you must find office space and that space may be in your home.
- Do not rent the office in your home to your corporation.
- Have your corporation reimburse your home office expenses to you as an employee business expense.
Do not report reimbursed employee expenses as taxable income.
Your corporation gets the deduction for its reimbursement of your employee expenses. But with this deduction comes the need for proof. Make sure you submit proof to your corporation that backs up the deduction—for example:
- Receipts for expenses
- Photos that show the office set up for exclusive business use
- A logbook, for at least a sample period, that shows use of the office for more than 10 hours a week.
Planning Tip: Complete IRS Form 8829 showing your home-ofﬁce expenses for the year. Do not ﬁle this form with your tax return. Instead, attach the form to an expense report that you give to your corporation as the basis for corporate reimbursement to you for the home-ofﬁce expenses.
With the uptick in COVID infections recently, I’m sure many of you already have made accommodations to your home to include an office space or two during these challenging times in order to avoid COVID health risks, and/or you prefer to work at home where it’s safe or where at least you can make your working environment healthy for you.
If you would like to discuss how to further these “Home Office” tax-saving techniques, please contact us at Morris + D’Angelo. This is our Expertise!
At Morris + D’Angelo, we believe that Tax Optimization is one of the most empowering and responsible things you can do to protect your growing financial assets. Tax optimization looks at a multi-year approach to minimizing tax costs. Tax avoidance is integral to tax optimization.
Parts of this article are published with permission from Bradford Tax Institute, © 2021 Daniel Morris, Morris + D’Angelo
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