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Would you not have your business rent back your house space and so still get the deduction?

Tom Copeland

If the business rents the house from you the business can claim the rent as an expense. But you have to report the rent as rental income as an individual on Schedule E. However, you cannot claim house expenses as a deduction on Schedule E. See IRS Code Section 280A.


Isn't another advantage that you can be covered under workman's comp. and unemployment benefits.

Tom Copeland

Maria - Yes and no. Yes, because you could get unemployment as an employee of a corporation, but no, you can be covered by workers' compensation even if you are not incorporated. I don't think these two issues are a significant reason to incorporate.

Christopher  S Thomas, CPA

The costs and benefits to being an LLC and electing to be taxed as an S corporation (no corporate meeting, or minutes requirements) varies from state to state but a local CPA can calculate if it would be worth it. Yes your compliance costs are higher with an S corporation, especially if you don't already have an employee or two. Additionally you do loose your depreciation which might only be 300-600 in deductions, but the time space utilization of your home and other assets can be "reimbursed" that is to say expensed through the corporation(you) meaning the bulk of the tax benefits are kept and economically the same. the big benefit is the employment taxes. If the operation is looking at 50,000 in net earnings you are looking at over 7,500 in Social security and medicare taxes before you even begin to pay for income taxes. if you were treated as an S corporation your pay might be say 20,000 as wages saving you over 4,500/year which usually pays for the added costs of compliance and can usually get you an accountant year round to provide consulting, bookkeeping, financial reporting, tax planning, etc. To conclude, it may be appropriate to consider being an S Corporation, but that usually requires enough net earnings before it pays for itself through the tax savings.

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