K-1 AND Unreimbursed expenses

[WITAXLADY]

Taxpayers are mostly owners of restaurant franchise and most expenses are reimbursed including office equipment ion home. K-1 of S Corp.

However, OIH expenses, meals and enter, other miles, etc are not.

How can they take these expenses?

cross posted.

Thank you,

D

[Jack from Ohio]

OIH expenses are not deductible for a partner in an S-Corp.

[jainen]

>>most expenses are reimbursed<<

Employee expenses are only deductible if they are for the convenience of the employer. Since there already is a reimbursement plan, I would guess additional expenses are not authorized.

However (anticipating their arguments) they might use Form 2106 and/or Schedule A, assuming the expenses are in proportion to their W-2. Even then, I would be skeptical of meals & entertainment, especially if it is "to see what the competition is doing" or some such nonsense. Remember that although generally we don't audit records, the law sets specific standards for documenting M&E so the preparer should verify annotated receipts. As for business use of home, it is never deductible when there is another fixed location.

[WITAXLADY]

WELL, there is not an office there and the head company does recognize the office and supplies electronic equipment..

worth a try

they just need to have more reimbursed if they want it deductible!

Thank you

[Guest Taxed]

I am not sure if this could apply to your client who is a sub-s restaurant franchisee.

I have a real estate broker working from home office and sub-S corp. We do a 8829 as a worksheet to figure out the expense and then the corporation writes a check each year to reimburse her for that expense via an accountable expense reimbursement plan. Same thing with travel and M&E. No form 2106 is filed.

[jainen]

>>worth a try<<

No it isn't. The rule for administrative use just says a fixed location where administrative or management work is done, not necessarily an office. Anything more than incidental work at the restaurant would disqualify the home office. So unless he has job applicants come to his house for the interview, and employees show up for training and getting fired and so on, and customers demanding to speak to the manager are referred to his home office....

It doesn't matter that the head company lets him have equipment at home. That is not one of the criteria for a QUALIFIED home office. For the same reason, he can't use an accountable plan to reimburse his home office expenses either. And that also means his commute miles can not be reimbursed except as a taxable fringe benefit. It sounds to me like the savvy head company already deducts everything possible. It's all covered under his franchise fee, of course, so he can deduct that.

[TheFinanceWriter]

Looks like the home office situation is fairly clear from the earlier posts. No deduction unless the home qualifies as the principal place of business for administrative and management activities, which is doubtful for a restaurant operation.

As for deducting other expenses, I have this difficulty with many S corp officer/shareholders. The expenses are deductible just like unreimbursed amounts paid by any other employee – on Form 2106. That is, of course, entirely different from unreimbursed expenses of a partner in a partnership. This is an opportunity to prove your value as a tax adviser. The S corp should pay the expenses directly... even if the shareholders must loan the funds to the business.