S Corporation Shareholder-Employee Business Use of A Home
Shareholder
(owners) of an S Corporation who render services to the corporation's trade or
business are deemed to be an employee (and not an independent contractor) of
the corporation.
Because
the shareholder is deemed an employee, they are required by law to be paid a
reasonable amount of compensation (wages) services rendered which is reportable
on their W-2 each year.
The
general rule is that employee un-reimbursed business expenses (business
expenses that an employee incurs while conducting business that are not
reimbursed by the corporation) are deductible on Form 2106. These expenses are
then transferred to Schedule A, Itemized Deductions, and included are line #21.
Further, these expenses are subject to a 2% of Adjusted Gross Limit threshold
limit before they can potentially become deductible, assuming the taxpayer does
itemize deductions and not take the standard deduction.
Employee
business expenses (including the business use of a home) by a S Corporation
Shareholders officers, or regular employees have a special requirement in order
for the expenses to be deductible.
The
tax law requires a written corporation resolution that requires the taxpayer to
incur expense as may be necessary or required, and that they would not be
reimbursed by the corporation. Thus, a written corporate resolution or policy
in place requiring a shareholder, officer or employee to assume specific
expenses is required in case of an IRS Audit.
Without
the corporate resolution, the IRS in an audit will most deny the deduction as a
voluntary payment of corporate expenses, and consider them to be capital
contributions or loans to the corporation.
NOTE:
Even if there is a written corporation resolution, specifically the shareholder
MUST follow the law requiring they receive reasonable compensation wages for
services rendered to the corporation.
This
article was written by Donald M. Scherzi, CPA, CFP, LLC
Mike Lupo, SCORE Counselor
Visit us at: www.scoresouthflorida.net
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