UPDATE 2/25/17 — please don’t confuse partnerships with S-Corps.  The home office deduction for partnerships is completely different than what I’ve outlined below.  There’s a fabulous blog post about partnership home office deductions here, by an excellent CPA firm in Oregon.

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As you may know, many small businesses take a “home office deduction” on their personal return.  But that doesn’t include S-Corp shareholders.  Those business owners cannot take the home office deduction because they are considered employees of the business, as well as owners, and as such, they would be restricted under the same “2% of AGI” floor that regular employees are when they try to deduct unreimbursed employee expenses.

They also aren’t allowed to charge themselves rent — or if they do, they can’t deduct expenses against it, making that arrangement costly.

However, they can get reimbursed by the S-Corp for their out-of-pocket expenses.  It’s called an “Accountable Plan”, and it’s really quite simple.  Just keep decent records — which you’d have to do if you were claiming the home office deduction anyway.  Substantiate the portion of the space used by your business, divide it by the total square footage, and there you have your business-use-percentage.  Now multiply that by the expenses related to running an office out of your home — keeping in mind that you have to follow the same rules as sole proprietors: the space has to be used BOTH regularly and exclusively for business.  I have a couple of clients who wrote up an accountable plan (stating that the company would reimburse the shareholder-employee for these substantiated home office expenses) and attached a floor plan of the office space as further support for which portion is personal and which is business-use.  Nice touch.

I was really impressed by this lovely article that a CPA firm out in Colorado wrote on the topic, and they link to a “sample accountable plan reimbursement form” that’s quite nice (they even update it annually).  If you’re looking for a CPA in that area, I must say I was pretty impressed with their resources, offerings and pricing.

Pull Money Out of the S-Corp, Accountable Plan – Watson CPA Group- Tax KnowledgeBase and FAQs.