One thing about tax is that it’s always changing. Make sure you check what the latest information is on any particular tax topic. This new Tax Court memo surprised me!
In the case of Greatest Common Factor, a C Corporation had been denied the home office deduction, along with a few other deductions. The comment by the Tax Court in Tax Court Memo 2023-39 surprised me! And it’s made it simpler for C Corp owners to take the home office deduction.
First of all, please note that this is for C Corporations. We don’t know whether it will apply to S Corps. My personal crystal ball, or Magic 8 ball, says “signs point to no.” In other words, I don’t think S Corps will get the same benefit. It’s just for C Corps.
So, this is the statement that changed a lot of things:
“A C corporation “may deduct payments made to lease home office space from an employee (or from its owner) as rent if they are ordinary and necessary expenses [under section 162] directly connected with or pertaining to the corporation’s trade or business.” “
In the past, we have recommended that you use an accountable plan to reimburse home office expenses. This isn’t wrong, but this other avenue is a lot simpler.
In order to put this in place, you will need a few things.
(1)  Prepare a written rental agreement between the Corporation and the individual. There was no rental agreement in the case of Greatest Common Factor and that is one of the reasons why they lost the home office deduction.
(2)  The home office rent needs to be a reasonable amount.

(3)   The money has to actually be paid from the C Corp to the shareholder/employee. This was another reason why Greatest Common Factor was denied the deduction.

As with all tax changes, make sure you talk to your tax professional first to determine the best procedure for you and what documentation you need.