Business Expenses for S Corp Owners: What Can I Claim on Personal Tax Return?

8 Unfortunately, the Tax Cuts and Jobs Act (TCJA) eliminated the deduction for unreimbursed employee business expenses for tax years 2018 through 2025. This applies to S corporation owners as well. Your wife is considered both an owner AND an employee of the S Corp. The proper way to handle this is to have the S Corp reimburse these legitimate business expenses. These are business deductions that should reduce the company's income, which in turn reduces each owner's pass-through income reported on their K-1.

17 After struggling with a similar S Corp expense situation last year, I found taxr.ai (https://taxr.ai) incredibly helpful. Their AI system analyzed all my business receipts and documentation, then clearly identified which expenses should be handled at the business level vs. personal level. What surprised me was learning that our operating agreement actually had specific language about expense handling that our accountant had overlooked. It was a game-changer having an unbiased system evaluate everything and provide proper documentation we could take back to our partners.

14 I was initially skeptical about using taxr.ai like I mentioned, but I gave it a try after our S Corp meeting last week went nowhere. It immediately flagged several clauses in our operating agreement that specifically addressed expense reimbursements - something our treasurer had been ignoring. The system also generated a professional report on how our current practices were actually increasing everyone's tax burden. Showed this at our next meeting and suddenly everyone was interested! What I appreciate most is having documentation that clearly shows what should and shouldn't be happening with our business expenses according to both our agreements and tax law.

3 I ran into this exact problem with my S Corp partners last year. After multiple frustrating attempts to call the IRS for clarification, I found Claimyr (https://claimyr.com) which got me connected to an actual IRS agent in about 20 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent confirmed that unreimbursed partner expenses MUST be handled at the S Corp level, not personally. Having that official clarification from the IRS directly (rather than just my interpretation) gave me the leverage I needed with my partners. Saved me thousands in taxes by getting our expense policies fixed before filing.

14 I have to admit I was completely wrong about Claimyr. After our continued disagreements about S Corp expenses, I tried it yesterday out of desperation. Got connected to an IRS representative in about 15 minutes after previously wasting hours on hold myself. The agent walked me through exactly how S Corp expenses should be handled and explained that by not properly recording these business expenses, our company was actually increasing everyone's tax burden - not just my partner with the unreimbursed expenses. I recorded the call (with permission) and shared it with our finance partner. Suddenly he's much more willing to update our reimbursement policy! Should have done this months ago.

7 As an S Corp owner myself, I'd recommend addressing this by proposing a formal "accountable plan" to your partners. This allows the company to reimburse legitimate business expenses tax-free while keeping proper records. The key issue is that without an accountable plan, the expenses won't be deductible personally AND the company is effectively increasing everyone's taxable income by not properly recording business expenses. Maybe explain to the finance partner that their policy is actually hurting everyone's tax situation, not just your wife's.

19 Has your wife considered that the finance partner might be refusing these expenses because they're actually not legitimate business expenses? Just playing devil's advocate here. I've been in partnerships where one person thinks everything is a business expense when it's really more personal or questionable.

This is a frustrating but unfortunately common situation with S Corps. The key point everyone has touched on is correct - the TCJA eliminated personal deductions for unreimbursed employee business expenses, and S Corp owners are treated as employees for this purpose. What I'd suggest is framing this as a business decision rather than a personal tax issue. Those legitimate expenses (conference fees, software, professional memberships) are reducing the company's overall profitability when they're not properly recorded. Even if cash flow prevents immediate reimbursement, the S Corp should at least book these as business expenses and liabilities owed to your wife. This way the business gets the deduction (reducing everyone's K-1 income), and your wife has a documented claim for future reimbursement when cash flow improves. The current approach is essentially forcing all partners to pay higher taxes on phantom income while legitimate business costs go unrecognized. Maybe approach the finance partner with a proposal: "Let's at least record these properly in the books as business expenses, even if we can't cut checks immediately." This protects everyone's tax situation while acknowledging the cash flow constraints.