S-Corp: Mortgage and Utilities business write-offs.

[Eternum]

Hi folks,

My company's office occupies one bedroom in my primary residence. What I do as of now is writing-off some utilities expenses basing on square footage, which is relatively small percentage.

Someone told me that I, in fact, can write-off about 30-33% of utilities expenses because I have three rooms with doors and office occupies one of them. It does not have to be based on square footage. This may or may not make sense to you, but this is exactly what I heard. Any comments are appreciated.

Second question is this: Can I write off, or, rather, pay from company's account any portion of mortgage?

Thanks!

[KristineS]

My guess is that you would be better off talking to a CPA who is well versed in the tax laws of your state. We do have people here who may be able to give you an answer to your question, but I'd still confirm what you're told here with someone who specializes in small business accounting where you live.

[Evan]

You have a few options for your S-Corp being located in your home.

1. S-Corp pays rent to the shareholder. You could determine a reasonable amount for rent. The S-Corp gets this as a Rent Expense. On your side, you then have to file Schedule E with your tax return to report this rental income. Your home can then be depreciated and utilities deducted, apportioned for amount of the home used.

2. S-Corp sets up "accountable plan" for shareholder/officer expenses. This tends to be an "easier" route, though not necessarily the most advantageous. With this, the company would reimburse employees (aka you) for expenses incurred up to a certain amount. The good thing is you can write this policy. Though keep in mind the expenses must be reasonable, and used in the course of your business.

The square footage tends to be the most fair and what is generally used for the "home office" deduction. You don't just divide the house by how many "rooms" there are and take that percentage. That's an absurd notion.

I do recommend contacting a local CPA to discuss what would be most advantageous for YOUR business. To minimize taxes, it really requires long-term planning, not short-sighted decisions.

Best of luck!