Level 10

Self rental and options

Forum|Forum|1 year ago
March 2, 2025
2 replies
16 views

Client S corporation has a 2024 revenue of 400,000 and $200,000 of wage expense, which is paid to him. He has no other employees. He has a home (high mtg int and high RE taxes) and an office in that home. The prior CPA had the S corporation pay the owner rent for this office space. That means the S Corporation gets a rent deduction and the individual has rental income. And a $400 net investment income tax on his 2023 1040 results.

I think an accountable plan reimbursing the owner for home office costs would be better because no rental income would be reported.

A comparison for 2024 shows a $500 tax increase with the self-rental.

Any thoughts? Yawns of boredom? Huzzahs for something interesting?

Tax Talk

sjrcpa

Level 15

Accountable plan sounds good to me.

The more I know the more I don’t know.

qbteachmt

Level 15

The S Corp has no other office location. The person does no other work in this office.

Are both of these true?

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sjrcpa

Level 15

@qbteachmt Do either of those matter?

The S Corp can reimburse the shareholder employee for the use of the home office. Doesn't have to be exclusive. They can negotiate among themselves.

The more I know the more I don’t know.

qbteachmt

Level 15

They can't really negotiate among themselves. The point of An Accountable Plan is to show substantiation, not based on an allowance. A vague amount comes across as rental. "For the convenience of the employer" applies, and there might be another primary location; I was asking not to eliminate but to find out. It seems unlikely the S Corp would be audited to that level, but a kitchen table with the computer at one end isn't going to fly.

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