I've formed an S-Corp in California for a small local business. Like many small business owners I'll be operating the business out of my home.
What expenses can the corporation pay for without worries of problems down the line, such as Commingling Business and Personal Funds or problems with the IRS?
According to the IRS...
Generally, in order to claim a business deduction for your home, you must use part of your home exclusively and regularly:
For certain storage use, rental use, or daycare-facility use, you are required to use the property regularly but not exclusively.
Generally, the amount you can deduct depends on the percentage of your home used for business. Your deduction for certain expenses will be limited if your gross income from your business is less than your total business expenses.
There are special rules for qualified daycare providers and for persons storing business inventory or product samples.
If you are self-employed, use Form 8829, Expenses for Business Use of Your Home to figure your home office deduction and report those deductions on line 30 of Form 1040 Schedule C, Profit or Loss From Business.
Different rules apply for claiming the home office deduction if you are an employee. For example, the regular and exclusive business use must be for the convenience of your employer.
For more information see IRS Publication 587, Business Use of Your Home, available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).
First, the disclaimer: IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by Internal Revenue Service, you are advised that: (1) any federal tax advice included in the text of this message, or in an attachment, is not intended or written to be used, and cannot be used, by any recipient for the purpose of avoiding any penalties under the Internal Revenue Code that may be imposed upon such recipient; (2) any statements regarding federal tax matters made in this message, cannot be used in promoting, marketing, or recommending any transaction, matter, entity, investment plan or arrangement addressed herein; and (3) nothing stated herein is a substitute for the advice of a licensed tax professional; consult a tax professional before relying on anything stated below. The information below is general in nature. You want some fun deductions? Well, 50% of the cost of a qualified business meal can be deducted (when you take a business prospect out to dinner). This can make taking clients out to dinner a lot more palatable (no pun intended).
The biggest savings of incorporating is not having to pay quarterly self employment taxes, so long as you pay yourself a "reasonable" salary, doing whatever you are doing. Although you will have to pay self-employment tax on that salary, anything earned over and above that will not be subject to self-employment taxation. What's reasonable? Hire a CPA.
Travel expenses can be deducted, generally speaking. And the Federal Government just magnanimously raised the per mile deduction by $0.01. Most relevant for your purposes are probably office supplies and software: but be careful. Software and computers are usually depreciated, or diminish in value over time, so you would be WELL ADVISED to hire a CPA to help you with tax planning.
CPAs love to do this, by the way, and the savings they can think up are sometimes amazing. A qualified tax professional can do wonders for your return. You're probably thinking this all sounds expensive... ...but guess what else is deductible? Fees for professional services for your business! (Though you may have to depreciate the deduction.)