From: Port St. Lucie, FL
Dear TaxMama,
I just finished your "Small
Business Taxes Easy" book and found it to be
very interesting.
I have two questions please:
1. Home Office. Can a Sub-S take the home-office deduction?
2. Sub-S >2% Shareholders. If a shareholder is also an employee, can he/she
join in the "benefits" like the others?
THANK YOU.
Bob
Hi Bob
Thank you very much for the kind words.
1) Yes. But it won't be quite the same.
a) Your Sub-S will have a rental agreement between you and the company.
The S will pay a specified amount of rent of each month.
b) And it will pay utilities, if you so chose.
c) You will report the rental income on your Schedule E On the Schedule
E you may deduct the business use percentage of your mortgage interest, your
utilities, your homeowner's insurance, repair and maintenance, etc. And the
depreciation on the business portion of the home.
2) Aw, no. Anytime you have an S-Corp, the owner MUST be an employee. And,
as a 2%+ employee, the benefits are generally not deductible. So, if you're
looking to tap your business for lots of benefits and retirement deposits,
and such, consider a C-corporation.
Do your accounting on time, and you'll be able to ensure there are no profits
left in the company at the end of the year, to be taxed.
I know, you're going to hear/read that health insurance IS deductible by
an S-corp owner. Let's just get that out of the way, right now, OK?
Here is the operative phrase in the law:
"The cost of these health and accident insurance premiums paid on behalf
of the greater than 2% ] S corporation shareholder-employee is deductible
by the S corporation and reportable as additional compensation to the shareholder."
So, you see, the net effect is -0-.
The S-Corp deducts the premiums and adds them to your wages.
The S-corp's profits pass through to your tax return.
As far as I'n concerned, it's less expensive and less paperwork not to do
in the S-corp. But, hey, that's what I do for a living Imagine if you have
to do this yourself?
At least, living in Florida, you don't have to worry about most state taxes!
And remember, build that management team!
Best Wishes,
Eva Rosenberg, MBA, EA
