Tax Free Home Office Reimbursement

You’ve likely been handling some work from home. But are you capturing the tax benefits? The home office tax deduction provides serious tax savings to agency owners. Turning otherwise nondeductible personal expenses into big business deductions. But remember, the Tax Cuts and Jobs Act has eliminated deducting these as itemized deductions. Luckily, there is The Accountable Plan.

The Accountable Plan

When your agency reimburses you through an accountable plan, the payment is:
  • Tax-free to you
  • Tax deductible to the agency (reducing your share of the taxable net income)

In order to qualify, you just need to check off these boxes:

  1. Your home office is maintained as a condition of employment
  2. Your home office is necessary for the functioning of your agency
  3. Your home office is necessary for you to perform your duties properly

Then follow three steps to complete the reimbursement:

  1. Submit an reimbursement request under your agency’s accountable plan policy
  2. Your agency reimburses you for the home office, deducting 100% (reducing taxable income)
  3. Deposit the reimbursement check from your agency tax free

Doing the math.

Deductions that apply to your home office can include, depreciation, interest, rent, internet, utilities and property taxes. Figuring it all out gets a little complicated, so I built this calculator that makes calculating a breeze. Failure to use an accountable plan turns improperly reimbursed expenses into taxable wages. In other words, if you don’t follow the rules, a would be tax-free reimbursement turns into taxable W-2 wages. That’s about as terrible as it gets.

Protecting yourself.

With proper reimbursements under an accountable plan, your agency pays you back tax free for your home office. You can sleep well knowing you’re paying less tax and are audit proof with the IRS.

Resources.

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