Home Office Expense Deduction

The IRS allows business entities to deduct home office expenses. If a taxpayer has a room in their home solely devoted to business use with no personal use, the taxpayer can ratably deduct utilities, HOA dues, insurance, maintenance, and other costs. The formula for deduction is home office square footage/total home square footage. This percentage is then applied to the costs listed above. Some costs can be deducted 100% if the costs are directly attributable to the business. For example, if your home has a separate electric meter for your business and personal use, you may deduct 100% of the electricity recorded on business electric meter. It is extremely important that if you choose to take this deduction, your home office is separated from the personal use area of your home and is strictly used for business.


While the method of deduction for a Schedule C taxpayer is the same as the method used by an S Corp and C Corp, there are some additional requirements that S Corps and C Corps must adhere to. S Corp and C Corp owners are technically employees of the business. In order for the business to deduct expenses for an owner's business use of the home, the business must reimburse the owner/employee for the expenses through the implementation of an accountable plan. Accountable plans require the owner/employee to submit an expense report for reimbursement. The expense report must be submitted periodically and regularly. For example, an owner/employee might submit for expense reimbursement once a year with reports due every December 15th. Another example would be requiring submission of reports monthly, due by the 15th of the following month (January's report due by February 15th). For more information about accountable plans, please see this article: https://www.cumminggacpa.com/single-post/accountable-plan

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