ISSUE NO. 64 WEEKLY CFO BRIEF A practical weekly field note from Basta CPA.

THIS WEEK'S STORY

Jake thought his home office was covered. It wasn't.

Samy Basta, CPA

Jake runs a residential remodeling business up in Sacramento. He got on Zoom with me in April with one question.

"Why is my refund so small? I thought the home office was covered."

I asked him what he meant by covered.

"The lease," he said. "My company rents my home office from me. Twelve hundred dollars ($1,200) a month. My buddy's CPA told him to set one up, so I did the same."

There it was.

Section 280A(c)(6) blocks the deduction when an employee rents home space to their employer. Jake is an employee of his own S corp. So the company deducts the rent. Jake reports the same amount as income on his own return. The two cancel out.

Fourteen thousand four hundred dollars ($14,400) moved from one pocket to the other. Net savings, zero.

But that is not what cost him.

Once the lease was in place, Jake stopped tracking his home costs. No utility bills. No insurance. No repairs, no property tax allocation, no depreciation. He figured the rent handled it, so he threw the receipts away.

Two years of real deductions he can no longer prove.

Here is what he should have had from day one. An accountable plan. The company signs a short written policy. Jake measures his office and gets his percentage. Every quarter he submits the business share of his home costs. The company reimburses him.

That reimbursement is not wages. No income tax on it. No payroll tax. And the company deducts every dollar.

Same office. Same house. The difference is whether anybody kept the paperwork.

We set his plan up in a week. He is tracking again. The two years behind him are closed.

Most builders I talk to have this backwards. They hear "rent your house to your business" on a job site or a podcast, and they run with it. Nobody warns them that the rent washes out and the receipts stop.

Quick note from your CFO​ ​If you have a lease with your own company, pull it out this week. Then go look for your last two years of home expense records. That is the part that hurts.

Fix My CFO Rhythm

— What I Would Check This Week

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•✓•

Pull the lease between you and your own company. Find what your company paid you in rent last year, then find the same number on your personal return. If both numbers are there, you netted zero. Two pieces of paper, one wash.

•✓•

Go looking for your last two years of home expense records. Utility bills, insurance, repairs, property tax, mortgage interest. If the folder is thin, that is your answer, and that is money you cannot get back. Start the folder today either way.

•✓•

Measure your office and get your percentage. Square footage of the office divided by square footage of the house. That number drives every dollar of your reimbursement, so measure it once and write it down. Guessing is how deductions get thrown out.

•✓•

Ask your accountant if you have a written accountable plan on file. Not a conversation about one. A signed document. Without it, every reimbursement your company sends you turns into taxable wages.

— Deep Dive

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01

Stop letting DIY bookkeeping hide your studio’s real profit DIY bookkeeping may look fine until procurement, deposits, and project costs start overlapping, making it harder to see real margins and available cash. ​Read more →​

02

See if an S-corp actually fits your architecture firm For California architecture firms, an S-corp can help in the right setup, but only when legal structure, owner pay, cash flow, and accounting controls all support it. ​Read more →​

03

Choose a CPA who understands how construction trades actually run For contractors and trade businesses, the right CPA should understand job margins, retainage, cash flow, payroll, and tax planning, not just file the return. ​Read more →​

Basta and Company

100 Pine Street, Suite 1250
San Francisco, CA 94111

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