How to Take the S Corp Home Office Deduction: 2025 Guide

Posted on October 18, 2025

If you own an S Corporation and work from home, maximizing your home office deduction can make a real difference at tax time. Many business owners miss out on savings or run into trouble with the IRS due to confusion about the correct process. This guide breaks down the steps S Corp owners need to follow in 2025, highlights key differences from sole proprietors, and shows how to do things right so you keep more of what you earn and stay compliant.

What You’ll Learn in This Guide:

What Makes S Corp Home Office Deductions Unique?

A home office deduction looks very different for an S Corporation than it does for a sole proprietor. As an S Corp owner, you can’t just write off your home office expenses directly on your personal return. You need to use an accountable plan and get reimbursed by your business.

Sole Proprietor:

Deducts home office expenses on Schedule C.
Uses Form 8829 or the simplified method.

S Corp Owner:

Submits expenses through an accountable plan.
Receives reimbursement from the S Corp.

This process matters because many small businesses use the S Corp structure. Handling your deduction correctly means avoiding issues with the IRS and taking advantage of all allowable savings.

Who Qualifies for the Deduction?

Not every workspace at home qualifies. The IRS has clear rules. Your home office must be used exclusively and regularly for your S Corp’s business. It should be your primary location for administrative or management activities, such as bookkeeping, scheduling, or client calls.

Qualifies	Does NOT Qualify
✅ Your spare bedroom set up as your S Corp’s admin office	❌ Your kitchen table, where you also eat meals
✅ A dedicated area in your basement used only for business	❌ Your bedroom, where you keep a desk but also sleep and store personal items
✅ A separate home studio or workshop building used only for business activities	❌ Your living room couch, where you work while watching TV
✅ A finished attic room that serves as your dedicated business office	❌ A dining room table used for both business meetings and family dinners

Business owners in many fields, from consulting to trades and professional services, often use a room at home for business. You’re in a good position as long as that space is only for your company’s work.

Two Methods for Calculating the Deduction

There are two main methods for calculating your home office deduction: the simplified method and the Actual Expense Method.

Simplified Method

The IRS allows you to use a flat rate of $5 per square foot, up to 300 square feet. This method is quick and easy. Just measure your office, multiply the square footage by $5, and you have your deduction amount. For example, if your office is 200 square feet, your deduction is $1,000.

Actual Expense Method

This method allows you to deduct a share of your actual expenses, including mortgage interest, rent, utilities, insurance, repairs, and more. You calculate the business-use percentage by dividing your office space by the total square footage of your home. If your office is 10 percent of your house, you can deduct 10 percent of eligible costs.

Simplified Versus Actual Expense Method

Comparison Factor	Simplified Method	Actual Expense Method
How It Works	$5 per square foot of office space	Calculate the business-use percentage, then deduct that portion of home expenses
Maximum Deduction	$1,500 (300 sq ft maximum)	No limit (based on actual costs and business percentage)
Documentation Required	Basic measurements, photos of office space	Receipts for all home expenses, utility bills, mortgage/rent statements, repair invoices, detailed expense reports
Best For	Small offices under 300 sq ft, owners who want minimal paperwork	Larger offices, high-expense homes, owners with organized record-keeping
Pros	✅Quick calculation ✅Less record-keeping ✅Preserves full personal deductions	✅Higher potential deduction ✅Can claim depreciation ✅Reflects true costs
Cons	❌Lower potential deduction ❌Can’t claim actual high expenses ❌No depreciation allowed	❌Reduces personal Schedule A deductions ❌Complex calculations ❌Higher audit risk if poorly documented

Homeowners in older, high-utility homes may benefit more from the actual expense method. If you’re renting a small apartment, the simplified method often works best.

A Hidden Advantage of the Simplified Method

When using the actual expense method, you must reduce your personal Schedule A deductions for mortgage interest and real estate taxes by the business percentage. The simplified method lets you keep 100% of these personal deductions. Depending on your home’s size and your total expenses, the simplified expense method may be most beneficial.

This is a general guideline for when each method makes the most sense. Though with the high variability between businesses, we always recommend consulting a licensed accountant for specific guidance tailored to your situation.

Choose Simplified Method When:	Choose Actual Method When:
Your actual expenses are close to $1,500	Your actual expenses significantly exceed $1,500
You have significant mortgage interest/real estate taxes	You have low mortgage interest/real estate taxes
You want simplicity	You don’t mind detailed record-keeping

How S Corp Owners Actually Take the Deduction: The Accountable Plan

S Corp owners can’t deduct home office expenses directly on their personal tax returns. Instead, your business must establish an accountable plan; an IRS-compliant system that allows your S Corporation to reimburse you for legitimate business expenses without creating taxable income for you.

Think of it as a formal bridge between your personal home expenses and your business deductions. When structured properly, the S Corp gets the tax deduction while you receive tax-free reimbursements for the business portion of your home costs.

“Creating an accountable plan is a straightforward process.

Create a Written Accountable Plan:
Your S Corp needs a documented plan that outlines how expense reimbursements work. This doesn’t have to be complex, but it must be in writing and specify what expenses qualify, how they’ll be documented, and the reimbursement process. Your CPA can help you create a compliant plan that captures all legitimate expense categories.
Document the Business-Use Percentage:
Measure your dedicated office space and determine what percentage of your total home it represents. Document this with photos or a simple floor plan; this becomes the foundation for all your calculations.
Track and Organize Expenses:
Keep organized records of all home-related expenses: mortgage payments or rent, utilities, insurance, repairs, and maintenance. Your monthly or quarterly expense reports should clearly show how you calculated the business portion.
Submit Expense Reports:
Submit expense reports to your S Corp on a consistent schedule. The business then reimburses you for the calculated business portion, and the S Corp claims these as legitimate business deductions.
Get Reimbursed:
The S Corp pays you. You do not deduct the expenses on your personal return. The business takes the deduction.

Your accountable plan’s strength lies in its documentation. Keep these records organized and current:

Written accountable plan policy
Office measurements and floor plans
Copies of all home-related bills and receipts
Monthly or quarterly expense calculation reports
Records of all reimbursement payments

Avoiding Errors

Many S Corp owners inadvertently create problems by:

Paying home expenses directly from business accounts
Failing to update their calculations annually
Maintaining incomplete records.

These oversights can jeopardize your entire deduction if the IRS requests documentation. The key is treating your accountable plan as a legitimate business process, not an afterthought at tax time.

Avoid these mistakes to keep your deduction safe if the IRS ever asks questions. If you’re an S Corp or small business owner looking to set up (or improve) an accountable plan, working with a CPA like Bluegrass Professional Associates is the best way to get it right. Composing accountable plans is a common, highly valuable service they provide.

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Advanced Option: The Augusta Rule (Section 280A(g))

There is an additional home office use for S Corp owners to consider. The Augusta Rule allows you to rent your home to your S Corp for up to 14 days per year, tax-free. For example, if you hold monthly board meetings or annual planning sessions at home, your S Corp can pay you a reasonable rent for those days. The payment is deductible for the S Corp and not taxable to you.

Sample Augusta Rule Calculation

Days Rented	Fair Daily Rate	Total Payment
12	$300	$3,600

As with everything tax-related, using the Augusta rule requires documenting everything:

Write a simple rental agreement
Set a fair market rate (check local meeting space rentals)
Record meeting dates and topics
Keep payment records

This strategy is best for owners who regularly use their home for official S Corp purposes beyond routine work.

Avoiding Red Flags: Compliance and Audit Risk

The IRS pays close attention to home office deductions. Common audit triggers include vague expense reports, mixing business and personal space, or claiming too much space. Organizing documents that support your home office details helps you avoid additional scrutiny.

What to Keep:

Receipts
Photos or floor plans
Written accountable plan
Expense reports
Proof of payment

Keep all related documents together in paper or digital format for easy access. Update your records each year. This habit makes it much easier if you ever need to answer IRS questions.

Practical Examples from Small Businesses

Getting full credit for your home office deduction may sound complicated. But proper documentation typically only requires a few simple adjustments to your S Corp operation. Here are some examples of how some small businesses strengthen their documentation for claiming a home office deduction:

Consultant: Sarah, a consultant, uses a 120-square-foot spare room exclusively for client calls and admin. Her home is 1,200 square feet. Her business-use percentage is 10 percent. She documents her expenses and submits a quarterly report for reimbursement.
Real Estate Agent: James, a real estate agent, hosts monthly team meetings at his home. He uses the Augusta Rule to rent his main living area to his S Corp for 10 days per year at $250 per day. He keeps a signed rental agreement and meeting notes.
Construction Owner Example: Mike, who owns a small construction S Corp, handles all estimates and bookkeeping from his basement office. He measures the space, keeps utility bills, and submits a detailed annual expense report to get reimbursed by the S Corp.

Summary and Next Steps

You want to keep more of what you earn and avoid trouble with the IRS. By following these steps and keeping good records, your S Corp home office deduction can work for you year after year.

At Bluegrass Professional Associates, we specialize in helping S Corp owners nationwide confidently navigate complex tax strategies. With more than 25 years of tax and S-Corp experience, our team offers clear answers and proactive support, so you can focus on running your business, not worrying about paperwork.

Let us help you get the most from your home office deduction and every other S Corp advantage you’ve earned. Schedule a consultation with Bluegrass Professional Associates today.