What expenses can my home biz pay to me?

[FABQuest]

Just looking for a published list or statement describing what things my home business can pay me, the home owner. I'm a C corp run out of a separate building/office used exclusively for my biz. I'm talking about rent (I own my home), ISP, utilites, phone etc.
Thanks,
FAB Quest Dave

[The Entrepreneurs Network]

These are questions for a tax accountant, but I have always followed the rule that I can deduct a percentage of expenses of my home, IF I use a part for business. I calculate the portion of the expenses based on the square footage used exclusively for business as a % of the total square footage. I never push the envelope. It needs to be real. As you have a C Corp, I suggest you use an accountant to do your tax returns. You don't want to make any mistakes when it come to dealing with the IRS. Better safe than sorry is my motto when dealing with tax issues.

[Steve B]

Once you establish the percentage of the home used strictly for business - then the appropriate portion of all the utilities can be deducted. We added a home security system this year and we used the percentage on that expense as well.

[Evan]

There are three general options:


Deduct a reasonable percentage of these costs as a unreimbursed "employee business expense" on your 1040 Schedule A. (Not recommended, as these expenses must exceed 2% of your AGI.)
Have the corporation pay you rent. (Better, but not the most advantageous. You are only allowed certain expenses, and the others are all deductible on Schedule A in full.)
Establish an accountable plan for employee business expenses.

As I recommend doing option 3, you'd need to create this policy and put it in your corporate file. As for what you can include... everything you'd think of -- utilities, rent, internet, insurance etc.

If you own a home, I'd advise against including home mortgage interest -- as that is deductible on Schedule A. If you don't itemize, include it. The same is true for real estate taxes. But it also depends on what tax bracket your corporation and you are individually.

You do need to establish a reasonable percentage, and using the square footage method that was stated earlier is reasonable.

You should also create some type of employee reimbursement form, so that way you can list these expenses and have documentation for the corporation.

As this would be part of an accountable plan, the corporation has an expense, and it is not taxable to you as an employee.

[FABQuest]

Very simple and sensible. Something I learned with my previous and much larger corporation, one needs to take serious the maintaining of the corporate veil intact with consistent and clear documentation. In this case, an easy to create Excel spreadsheet should fill the bill.
Thanks again Evan!

FAB Quest Dave

[Evan]

No problem... And make sure your accountable plan is legitimately written down and put in with your other important legal documents -- like the bylaws.

While most corporations never really look at those rules, having them shows the formalities. And if you're ever audited, you'll want the written policy. Of course you'll want the board of directors (you) to approve it, so include it in the minutes!