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