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Tools & guides

Home tax savings for S corporation owners

If you operate as an S corporation, a regular home office or your home as a meeting space can provide a valuable business deduction.

Understanding the home office deduction

Your home can legitimately serve your S corporation in two very different ways: home office reimbursement and short-term meeting-space rental. Understanding the difference can help capture available deductions without creating unnecessary audit risk.

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Make the most of your home office or meeting-space deduction

Work regularly from a qualifying home office? Ask us about establishing an Accountable Plan so the S corporation can reimburse qualifying home-office costs.
Use your home, lake house or other residence for company meetings or retreats? A separate short-term rental arrangement—the “Augusta Rule”—may be available.
Don’t manufacture 14 rental days. Use the Augusta Rule only for genuine business events at a reasonable fair-market rental rate.
Talk with us before making Augusta Rule payments. Information-reporting requirements, including Form 1099-MISC, may apply. Let us help you structure and document the arrangement before payments are made.

Option one

Regularily work from your home office? Use an Accountable Plan.

If you regularly work from a qualifying area of your home, the S corporation can generally reimburse qualifying business-use-of-home expenses under a properly structured Accountable Plan.

The corporation deducts the qualifying reimbursement, and a properly substantiated reimbursement is generally tax-free to you as the shareholder-employee.

A qualifying home office generally requires an area used regularly and exclusively for business.

Here’s the records to maintain:

Business-use square footage
Total home square footage
Applicable utilities, insurance and other household expenses
Documentation of regular and exclusive business use
Reimbursement calculation
Proof the corporation actually reimbursed you

Best practice: Calculate and document the reimbursement consistently rather than simply paying personal household bills from the S corporation.

Option two

Using your home as a special meeting place? Apply the “Augusta Rule”.

IRC §280A(g) can potentially apply when your S corporation actually rents your qualifying residence for fewer than 15 days during the year.

When properly structured:

S corporation: may deduct reasonable rent for a bona fide business purpose.
Shareholder: qualifying rental income may be excluded from federal taxable income.

This can apply to more than your primary home. A qualifying dwelling can include a vacation home or even certain boats with living accommodations.

Appropriate uses might include:

Annual strategic planning
Board/shareholder meetings
Leadership retreats
Budget and annual-review meetings
Special meetings requiring private gathering space

The critical question: Would the company reasonably pay an unrelated party for comparable space for this event? If not, reconsider the deduction.

Home office and Augusta Rule?

Potentially—but they should represent different uses of the property. The Augusta Rule shouldn’t be used simply to create a second deduction for your ordinary home-office activity.

Better facts

You routinely work in a dedicated 150-square-foot home office. Twice during the year, the company rents the larger living/dining areas of your home for an all-day six-person leadership meeting.

Poorer facts

You routinely work alone from home, but once each month the corporation “rents” your entire house so you can sit in the same location and review the company’s financial statements.

Don’t chase 14 days

The rule isn’t “every S corporation owner gets 14 tax-free rental days.”

If the corporation genuinely needs your property for three meetings, document three rentals. Fourteen manufactured meetings don’t create stronger tax planning.

Fair-market rent matters

The rental amount should be reasonable and supportable based on what the corporation would pay an unrelated party for comparable space.

Before each significant rental, retain evidence of comparable rates for hotel meeting space, executive conference rooms, private event venues or similar gathering space. Compare the property to the business use being purchased, not simply its vacation-rental value.

Document it like an unrelated transaction

Create the documentation when the meeting occurs, not at year-end.

Rental agreement

Agenda and business purpose

Attendee list

Meeting notes/action items

Fair-market rental comparables

Invoice to the S corporation

Actual payment and proof of payment

Annual rental-day log

Before making payments: Related-party rental payments can create information-reporting requirements, including potentially Form 1099-MISC. Discuss the arrangement with us before making or recording Augusta Rule payments so we can help determine the applicable reporting requirements and make sure the documentation is in place.

Thinking about using your home for your S corporation?

Talk with us before setting up an Accountable Plan or making Augusta Rule payments. The goal is simple: capture legitimate deductions with a real business purpose, a reasonable amount, an actual payment and documentation that holds up. We can help you determine what applies and get the documentation right from the start.

Talk to us for guidance

Sources & authority

IRC §280A — Business Use of Home and Short-Term Rental of a Residence IRC §162 — Ordinary and Necessary Business Expenses Treas. Reg. §1.62-2 — Accountable Plans IRS Publication 587 — Business Use of Your Home IRS Publication 527 — Residential Rental Property IRS Instructions for Form 1099-MISC