If you're the only employee and shareholder of your S-Corporation and most of your income comes through K-1 distributions (not W-2 wages), you're technically considered an employee of the S-Corp, not self-employed. That means you're not eligible for many deductions that sole proprietors or freelancers can take on their personal tax returns, especially after the 2018 tax reform.
However, you can still benefit from home business deductions—just through the corporation itself rather than as an individual.
Here's how:
1. Set Up an Accountable Plan
You can create a formal "accountable plan" within your S-Corp. This allows the company to reimburse you for business-related expenses, including a portion of your home office costs (like utilities, internet, depreciation, and rent if applicable). These reimbursements are tax-deductible for the S-Corp and non-taxable for you, as long as they’re properly documented and meet IRS guidelines.
2. Use a Rental Agreement
Another option is having the S-Corp pay you rent for using part of your home as an office. This rent is deductible to the corporation, but you’ll have to report it as rental income on your personal tax return. It’s a bit more complex and may have less favorable tax treatment depending on your situation.
Final Word:
Although you’re not “self-employed” in the traditional sense, with proper planning, you can still deduct home office expenses through your S-Corporation. Be sure to keep solid records and speak with a qualified tax advisor to set things up correctly.
