Home Office Revisited

July 7th, 2023 at 3:07 PM

As an owner of a corporation and an employee within that corporation, you may be eligible for a home-office deduction if:

• you use the office in your home for the convenience of your employer corporation,
• you comply with the tax code rules for deducting a home office, and
• your corporation reimburses you, the corporate employee, for your home-office expenses.

It’s important to note that your home-office deduction opportunity changed with the Tax Cuts and Jobs Act, which discontinued employee business expenses as itemized deductions from 2018 to 2025. But your corporation can claim the deduction by reimbursing you for your home-office expenses.

Although not new, it’s also important to know that if you rent part of your residence to your employer corporation and use this rented space when working for the employer, you cannot deduct these home-office expenses.

You want your home office to qualify as a principal office, even when you have an office downtown. For this to happen, you need to

• use the home office exclusively and regularly for the corporate business,
• do almost all your administrative or management tasks at the home office, and
• use the home office for the convenience of the corporation, not for your personal convenience or comfort.

If your corporation doesn’t maintain an office outside your home office, it is clear that your home office is for the convenience of your employer corporation.

But when you have a downtown office, your use of the office in your home must be for the convenience of the corporation. Various reasons might justify using a home office, including preserving confidentiality, ensuring uninterrupted attention to business planning, or accommodating records, invoices, receipts, etc.

Additionally, the corporation should write you a letter mandating that you conduct your administrative or management tasks at home for the corporation’s convenience. This letter, written on corporate letterhead, should be kept in your corporate tax file.

If your home office qualifies as a principal office, there are numerous benefits, such as:

• You receive the employee business expense reimbursement as a tax-free fringe benefit.
• Your corporation can deduct the reimbursement as a business expense for office space.
• The home office’s principal-office status can eliminate personal-use commuting mileage, thereby increasing business use and deductions on the business vehicle.
• The home office can generate corporate business deductions from the business percentage of your personal home expenses.

Mark S. Fineberg, CPA