Step by Step Guide to Implementing a Home Office Accountable Plan

Put the Home Office Accountable Plan on your S-Corp letterhead and sign it as the corporate officer. Keep the signed document in the company’s permanent records.

Grab your Home Office Accountable Plan Agreement!

✓ Google document version (makes a copy to your drive)

✓ Document version (downloads to your computer)

Measure:

• The square footage of your dedicated home office space, and
• The total square footage of your home

Calculate and document your business use percentage (office sq ft ÷ home sq ft). This percentage will be applied to all reimbursable home office expenses.

Track and save all home office related expenses you pay personally such as utilities, internet, rent or mortgage interest, insurance, and office specific repairs and keep copies of each bill for the S-Corp’s records.

If the company reimburses a share of your mortgage interest or property tax, you cannot also deduct that same share on your personal Schedule A. We coordinate this when preparing your return so nothing is double counted.

Prepare a Home Office Expense Report at your chosen interval, listing each expense, the total amount, the business-use percentage, and the reimbursement requested, and attach the supporting bills.

Base the reimbursement on actual home costs (utilities, insurance, rent or mortgage interest, repairs) multiplied by your business-use percentage. The $5-per-square-foot simplified rate you may have seen elsewhere is a Schedule C shortcut, not a substantiated expense, and an accountable plan needs actual substantiation to keep the reimbursement tax free.

Your S-Corp should reimburse you from the business bank account for the business-use portion only. Record the payment in the books as an employee expense reimbursement, not wages and not an owner draw.

Under Treasury Regulation §1.62-2, the IRS provides two safe harbor methods for determining whether reimbursements under an accountable plan occur within a reasonable period.

Fixed-Date Method

Employee must:

• Substantiate expenses within 60 days after they are paid or incurred.
• Return any excess reimbursement within 120 days after receiving it.

This method works well for year-end reimbursements as long as these deadlines are met.

Periodic Statement Method

Employer sends statements at least quarterly asking employees to:

• Substantiate outstanding expenses.
• Return any excess amounts within 120 days.

This method encourages ongoing compliance throughout the year.

To protect the S-Corp in case of an IRS review, keep:

• The signed accountable plan
• Your business-use percentage calculation
• All bills and receipts
• All completed expense reports
• Proof of reimbursement payments

Store them with your S-Corp documents for at least 7 years.

If you or your bookkeeper accidentally reimburse more than the substantiated amount, return the excess to the S-Corp promptly within 120 days. This is required to preserve the accountable plan’s tax-free treatment.

To keep all reimbursements non-taxable, ensure you consistently follow the IRS’s three rules:

1. Expenses must be business-related
2. Expenses must be properly documented
3. Any excess reimbursements must be returned

Following these steps keeps your S-Corp in compliance and ensures that home office reimbursements remain tax-free.