S-Corp Home Office Deductions and More

As an S-corp owner, you have two main options
for home office deductions.

Remember that you are the owner and an
employee of your S-corp. 

Your S-corp can pay rent to you for the home
office. With this method, the S-Corp pays you rent and deduct it from the
company. But, the rental payment is taxable income to you, so there are no
actual savings

Or you can use an “Accountable
Plan,” and the S-Corp can pay you the cost of a home office
and other related expenses.


The S-corp deducts the amount of the
reimbursement. And you, as the employee, do not have to report the amount on
your personal income tax return.

What is an Accountable Plan?

An Accountable Plan allows for tax-free reimbursement to the employee and an increase in expenditures for the business.

 Although the IRS rules do not require your company’s Accountable Plan to be in writing, we highly recommend having a written policy in place to explain: 

  • what will be reimbursed; 
  • when it will be reimbursed; and 
  • what receipts should be kept. 

This is especially important in Corporations with more than one employee. Remember, as an S-corp owner, you are also an employee.

What Makes a Plan Accountable?

If an expense does not follow ALL of these guidelines, it will be considered “unaccountable” and become taxable to the employee:

  • The expenses must have a business connection;
  • The expenses must be substantiated within a reasonable period; and
  • The employee must return any money not spent to the employer within a reasonable period.

 What Can You Deduct?

Items that meet the above guidelines and are paid for with an employee’s personal funds, can be reimbursed under an Accountable Plan. Here is a general list:

  • Travel expenses;
  • Gas or mileage expenses;
  • Tools and supplies;
  • Home office, including depreciation;
  • Home internet;
  • Cellphone;
  • Training and development; and
  • Dues, subscriptions, and professional licenses.

Keeping Track of Expenses

We recommend that employees keep all receipts for all reimbursable expenses. Whether a credit card statement is sufficient as a receipt depends on the expense. Also, employees should not use cash for reimbursable expenses. 

Using a debit/credit card, Apple/Samsung Pay or PayPal, or other electronic forms of payment automatically creates a listing of purchases by dates, vendors, and amounts, usually sufficient for tracking purposes.

 Travel Expenses:

  • Hotel expenses can be reimbursed on an actual cost or using the GSA per diem rates. The IRS says both methods require receipts to be sent to the employer.
  • Meals while on travel- can be reimbursed on an actual cost or using the GSA per diem rates. If using the GSA rate, receipts under $75 don’t need to be sent to the employer. However, when using the actual cost, the meal costs must still be reasonable. For 2021 and 2022, the deduction is now 100% for the cost for meals provided by restaurants.

  • Uber/Taxi-should be reimbursed using actual costs. Receipts under $75 don’t have to be submitted to the employer.

Vehicle Expenses:

Use of a personal car for business purposes can be treated one of two ways:

  • For a fixed car use reimbursement (ex. $200 per pay check)- No receipts are necessary

  • For mileage reimbursement- A travel log with miles driven, date, and destination must be kept. These would be reimbursed using the IRS’ mileage rate (56 cents for 2021)

Tools and Supplies:

Tools and Supplies are a tricky area for reimbursable expenses as they can easily be considered unaccountable. We recommend reimbursements for tools and supplies follow these guidelines:

  • Are clearly for reimbursements. A company can’t designate a portion of an employee’s wages as tools and supplies to reduce their taxable wages. 

  • Employees are required to provide receipts over $75. As this area is grayer, we recommend the employee provide a detailed receipt showing the exact item purchased, not just a credit card statement.

Home in office:

The business can reimburse an employee for using part of their home as an office. First, an employee would calculate the percentage use of their home for business. This is typically done by taking the square footage of the office used and dividing it by total square footage of the home.  Keep in mind, the area selected as the “office” must be used regularly and exclusively for business. Typically, this means you can’t take your living room as an office!

Examples of expenses you can take (list does not include all possible expenses):

  • Mortgage interest/Rent;
  • Property taxes;
  • Homeowner/Renter Insurance;
  • Utilities;
  • Repairs and maintenance.

Home Internet:

Although closely related to the Home in Office, the IRS recognizes that an employee’s business use of their home internet may not directly correlate to the square footage of their home in office. The IRS only requires that the personal vs business usage determination is “reasonable” and consistently applied.

  • Based on the IRS guidelines, we recommend the employee calculate their average weekly hours they are assigned to work at their home office and divide it by 168 hours (hours in a week) to get their percentage of home internet that is applicable to the business and can be reimbursed.
  • Example- Although John Smith may go to job sites regularly, he does not use the job sites as an office. He typically works 40 hours a week at his home office. Our recommended percentage of Home internet use for business would be 40/168 (total hours in a week) or 23.8%.

Cell phone:

  • An employee can be reimbursed for company use of their personal cell phone.  However, the amount reimbursed must account for personal use of the phone. The personal vs. business use of the phone must be reasonable.

Training and development:

Employees can be reimbursed for training and development expenses they paid for out of pocket. We recommend the following guidelines for reimbursement of training and development expenses:

  • The Employee maintains all receipts, and submits to the company all receipts costs over $75.
  • The Employee maintains a copy of the syllabus, course objective or description that details what the training was for, just in case the business purpose of the training was ever questioned.

Dues, subscriptions, and professional licenses:

Employees can be reimbursed for dues, subscriptions and professional licenses expenses they paid for out of pocket. We recommend the following guidelines for reimbursement of dues, subscriptions and professional licenses expenses:

  • The Employee maintains all receipts, and submits to the company all receipts costs over $75.

How to Start an Accountable Plan:

To start an Accountable Plan, we recommend companies take the following steps:

Policy – Develop a policy for Accountable Plans, including

·         Detail what will be reimbursed and when.

·         Require the submission of all receipts over $75 (and all receipts for lodging).

·         Detail what needs to be included as part of the receipt. For some items, a credit card statement would be sufficient, other cases, more detail is necessary

·         Have employees sign the policy stating they agree to it

·         Provide participating employees a standard template for tracking their expenses

Spreadsheets – Have the employee submit their spreadsheet for reimbursement and receipts on a regular basis (weekly or monthly basis).

Your Next Best Steps

An Accountable Plan is an excellent way for your S-corp to reimburse an employee for expenses and give them a tax-free benefit.

And your company still gets the deduction.

Call CE Accounting and let us help set up your Accountable Plan today.

“This article is not intended to give, and should not be relied upon for, legal tax advice in any particular circumstance or fact situation. No action should be taken in reliance upon the information contained in this article without obtaining the advice of a qualified professional.”