One formality of using an S-Corp is that it should have an accountable plan for reimbursing employee expenses, including the employee’s home-office deduction. Without an accountable plan, employees report unreimbursed employee business expenses on Form 2106, which is part of miscellaneous itemized deductions only deductible in excess of 2% of AGI and not deductible for AMT. With proper usage of an accountable plan, the S-Corp reports the deductions on its tax return.
Expense reporting is more relaxed with partnership tax structures. Partners may report unreimbursed partnership expenses (UPE) on their individual tax return Schedule E, including home office deductions from Form 8829. S-corporation shareholders generally cannot deduct unreimbursed business expenses on Schedule E because the shareholders are categorized as employees when performing services for the corporation.
If you don’t have an accountable plan, draft one as soon as possible and use it before year-end. For home office deductions, reference Form 8829 as a guide for the S-Corp for reimbursement.
Click here for a sample accountable plan.
Learn more about accountable plans on our recommended payroll service provider’s Website at http://www.paychex.com/articles/finance/using-accountable-plans-benefits-both-employers-and-employees.
If you need help with an accountable plan, email us at firstname.lastname@example.org or contact your assigned CPA in our firm.