How Corporate Owners Can Qualify for the Home Office Deduction

The One-Way Route to the Deduction

Here’s how it works: your corporation must reimburse you, the employee, for the cost of maintaining a home office. The corporation then deducts those reimbursements as a business expense. You, as the employee, receive the reimbursement tax-free.

This is the only way to get the deduction because the Tax Cuts and Jobs Act eliminated employee business expense deductions through 2025. So you can’t claim the deduction directly on your personal tax return—the corporation has to do it.

Why You Can’t Rent to Your Corporation

Some owners try to rent part of their home to their corporation and then deduct the rent, but the IRS disallows that approach. If you rent space in your home to your employer and use that same space to perform services for the company, you can’t deduct home office expenses. The reimbursement method is the only legitimate route.

The “Convenience of Employer” Rule

To qualify, your home office use must be for the convenience of your employer—in this case, your corporation. If your home office exists primarily for your personal comfort or convenience, it won’t qualify. The IRS looks for legitimate business reasons your corporation requires you to perform administrative or management duties from home.

Examples include limited office space at your main business location, the need for privacy or confidentiality with certain records, or after-hours access that isn’t available at the office. If your home office is essential to running the corporation, you meet the convenience test.

When the Home Office Is the Only Office

If your corporation has no other office location, your home office automatically qualifies as the principal office. The corporation can reimburse you for your business-use percentage of home expenses such as utilities, insurance, mortgage interest, and depreciation. It’s important to document the square footage, keep records of expenses, and use the office exclusively for business purposes.

Related posts include: Will Your Home Office Deduction Pass the Muster in an IRS Audit or Raise Red Flags?, What Qualifies as Regular Use for the Home-Office Deduction?

When You Have More Than One Office

Many owners have both a home office and an outside office. In that case, you want your home office to be recognized as your principal place of business. If it qualifies as your principal office, your commute from home to your downtown office becomes business mileage rather than personal commuting. That can significantly increase your vehicle deduction. Related Post: Combine a Home Office Tax Deduction with a Heavy Vehicle for Major Tax Write-Offs

To qualify, you must use your home office regularly and exclusively for business, use it for the convenience of the corporation, and conduct substantial administrative or management activities there. Keep a written policy or letter from your corporation stating that your home office is required for corporate convenience.

Related Post:  Can You Deduct a Home Office if You Have Another Office Outside the Home?

Why Documentation Matters

Documentation is key. Your corporation should issue a letter on company letterhead requiring you to perform administrative duties from home for reasons that benefit the company—such as limited office space, confidentiality, cost efficiency, or after-hours availability. Include this letter in your corporate records or annual meeting minutes.

Keep copies of expense records, proof of exclusive use, and details on the business purpose of the home office. These details will protect you if the IRS questions the deduction later.

Additional Benefits of a Principal Home Office

Designating your home office as a principal place of business can create multiple tax advantages. It can increase business mileage deductions, allow the corporation to deduct a share of your home expenses, and convert personal costs into legitimate business write-offs.

When handled correctly, the corporation deducts the reimbursement as a business expense, while you receive the payment tax-free. Everyone wins—except maybe the IRS.

Bottom Line

Operating as a corporation has its advantages, but it also comes with specific requirements. If you want to take the corporate home office deduction, follow the one-way route: the corporation reimburses you for the expense, you document the business use, and the corporation takes the deduction. Done right, this strategy can produce meaningful tax savings every year.

Ken-Mar Tax helps business owners and corporate officers structure reimbursements, document expenses properly, and stay compliant while taking full advantage of available deductions. To learn more about setting up a reimbursement plan for your home office or other employee expenses, contact Ken-Mar Tax today.