Set up an

Accountable Reimbursement Plan

Prior to Tax Cuts and Jobs Act in 2017, W-2 employees could deduct unreimbursed job-related expense on their federal personal income tax returns. However, the TCJA changed and suspended most of these deductions through 2026.

For S Corporation owner-employee, you are still entitled to take this deduction by utilizing an "Accountable Reimbursement Plan". Without an Accountable plan, the business expense is considered compensation to employees and therefore create a wash.

There are three general guidelines to meet the Accountable Plan.

• Your expenses must have a business connection—that is, you must have paid or incurred deductible expenses while performing services as an employee of your employer.
• You must adequately account to your employer for these expenses within a reasonable period of time.
• You must return any excess reimbursement or allowance within a reasonable period of time.

Adequate Records and

Reimburse yourself before the year end

After implementing the Accountable Plan, the next focus is to ensure the accounting records are adequate.

You should ensure you document all the receipts and evidence that shows the amount, date, place, and essential character of the expense.

Once you finalize all the calculations and document necessary records, simply write a check or make a transfer for the home office deduction to yourself before the year end. By doing that you can book the expense accurately and it will reflect on your company' financial statement for the taxable year.

If you ever get into an audit, the financial statement, accountable reimbursement plan policy, documentation with receipts will be your best support to prove the expense deductibility.

Types of Deductions

You are entitled to utilize

Similar to home office deduction on Schedule C, you are entitled to take below expenses (not limited to):

• Mortgage Interest
• Real Estate Taxes
• Rent
• Home Insurance & Mortgage Insurance
• Repairs & Maintenance
• Utilities
• HOA
  
• Home Security System
• Internet
• Business use of personal cell phone
• Auto Expense
• Depreciation of your primary home*

*Note that this will create a depreciation recapture when you sell your primary residence.