The home office deduction for S corporation owners

Why you can't just deduct it

Once you work in your own S corporation, you're generally its shareholder-employee. Most employees can't deduct business costs they pay themselves — a rule Congress made permanent in 2025 — and a home office is one of those costs. So the Form 8829 route a sole proprietor uses isn't open to you.

How it works instead

The corporation reimburses you for the office's share of what your home costs, under an accountable plan. Done that way, the reimbursement isn't wages — no payroll tax, no income tax — and the corporation deducts it, which lowers the profit that passes through to your return. The saving is the reimbursement times your income-tax rate.

The office still has to qualify

A reimbursement doesn't make a space into a home office. It has to meet the same tests as anyone's:

1. Used regularly and only for the business.
2. Your principal place of business — including where you manage and run the company, if it has no other fixed place for that — or where you regularly meet clients, or a separate structure.
3. For the corporation's convenience. This is the test employees have and sole proprietors don't. It's met most clearly when the corporation has no other office where you could do the work, so the home office is where the business is actually run.

Records help show the facts but can't replace them: a note in the corporation's records that it provides no other office, the floor plan and measurements, and the accountable plan itself.

What the corporation reimburses

• The office's share of costs for the whole home — rent or mortgage interest, property tax, insurance, utilities, general repairs — usually by floor area.
• Costs for the office alone, like painting or repairing it, in full.
• Depreciation, if you own the home, is a question to settle with your CPA before you include it.

Whatever share of mortgage interest and property tax the corporation reimburses shouldn't also be deducted on your personal return. Tell whoever prepares it.

Two shortcuts that don't work

• The simplified method. The $5-a-square-foot option is only for people claiming the deduction on their own return. The IRS procedure that created it says it doesn't apply to an employee reimbursed by their employer — so the corporation reimburses actual costs.
• Renting the office to your corporation. If you rent part of your home to your employer and use it to work as its employee, the home office rules deny the deduction for it. Reimbursement is the route. (Renting your home to the corporation for occasional meetings — the Augusta rule — is a different rule with its own limits.)

A worked example

The owner of Harbor & Pine Design, the fictional S corporation in our sample report, runs the business from a 240-square-foot office in a 2,000-square-foot home — 12%. The home costs $22,500 a year. The corporation reimburses 12% of that, $225 a month, $2,700 a year, as part of each monthly expense report. At a 24% federal and 5% state rate, that saves about $780 a year in income tax.

See the month filled in, line by line, in the accountable plan template, or work out your own office.

Setting it up

• ○Confirm the space qualifies — exclusive use, principal place of business, the corporation's convenience
• ○Have the corporation adopt an accountable plan that covers home office costs
• ○Measure the office and the home, and write down the allocation
• ○Include the office's share in each monthly expense report, with the bills behind it
• ○Reimburse it from the corporation's account
• ○Tell your preparer, so the reimbursed share isn't deducted twice

When it doesn't fit

• The corporation has an office you could use, and you work from home by choice.
• The space isn't used only for the business.
• You're a sole proprietor or single-owner LLC taxed as one. You claim the deduction on your own return — see the home office deduction.

Whether your office qualifies, and what to reimburse, is a question for your CPA or tax attorney.