The home office deduction for founders (and the S-corp catch)

If you work from home, part of your housing costs can be deductible. How you claim it depends on your entity.

A lot of startups begin at a kitchen table. If part of your home is genuinely your office, some of your housing costs can be a business deduction.

The two rules

To qualify, the space has to be used:

Regularly, and
Exclusively for business.

“Exclusively” is the one that gets people. A spare room that’s only your office works. The couch where you also watch TV does not.

It also needs to be your principal place of business, or a place where you meet clients, which is usually true for a founder working from home.

Two ways to calculate it

Simplified method: $5 per square foot of office space, up to 300 square feet, for a maximum of $1,500. Very little record-keeping.

Regular method: take the percentage of your home used for the office and apply it to actual expenses: rent or mortgage interest, utilities, insurance, repairs, and depreciation if you own. It takes more records but can be worth a lot more, especially in high-cost areas.

The S-corp catch

If you run your business as a sole proprietorship or a single-member LLC, you claim the deduction on your personal return.

If your business is an S-corp, you’re an employee of your own company, and employees can’t deduct unreimbursed work expenses on their personal returns. Instead, the company reimburses you for the business portion of your home costs under an accountable plan. The company deducts it, and the reimbursement isn’t taxable to you. Same result, different paperwork, and it needs to be set up properly.

The short version

A dedicated space used only for work can earn you a deduction. Sole props claim it directly, and S-corp owners get reimbursed through an accountable plan. If you’re an S-corp without one, that’s a quick fix worth making.