If you have a business that is run like a Sole Proprietorship, you’ll report the income and loss on a Schedule C. One of the expenses that you can take is the home office expense.
But what do you do if your business is in a corporation? How can a corporation have a “home” office? (What is a corporation’s home anyway?)
It can’t. But a corporation can rent a space. In the recent case of Christopher CL Ng MD, Inc who had taken a rental expense deduction on the C Corporation. It was reported as income on the individual’s personal return, and then offset by pro-rata indirect costs and 100% of the direct costs.
In the end, the Tax Court determined that the corporation failed to prove that its arrangement with the employee/owner was a bona fide rental arrangement. They determined that it was simply an arrangement to make mortgage payments.
Why did they make that decision? The corporation couldn’t produce evidence of a written rental agreement.
The moral of this story is to have a written rental agreement if your business is within a corporation