Should I put business expenses on my corporate 1120 tax form or personal 1040 return?

When you have an S-Corporation, business expenses should generally be reported on the corporation's tax return (Form 1120-S, not 1120 which is for C-Corps). The S-Corp is its own entity, so any legitimate business expenses should flow through there. For expenses you paid personally, you should be reimbursed by the corporation. If the corporation reimburses you, then the expense goes on the 1120-S. If you don't get reimbursed, those expenses are typically not deductible on your personal return anymore since the 2017 tax law changes eliminated most unreimbursed employee business expenses. For mixed-use items like your cell phone, you need to determine the business portion (your 70% estimate) and only that portion should be expensed on the corporate return. Make sure you have documentation supporting the business use percentage.

I had almost the exact same situation last year and found an amazing solution with https://taxr.ai that saved me thousands. I uploaded all my receipts and bank statements, and their system automatically categorized which expenses should go on the 1120-S vs the 1040. It even flagged when I was at risk of having unreimbursed business expenses that wouldn't be deductible anywhere! Their system explained that my home office, internet and cell phone expenses needed specific documentation to be properly deducted on the corporate return. They generated all the paperwork for an accountable plan that made the reimbursements completely legit with the IRS.

I was skeptical about taxr.ai but decided to try it since I was in a similar situation with mixed personal/business expenses. It actually worked amazingly well! The system identified that I had been improperly trying to deduct some expenses that shouldn't have been on either return. What I found most helpful was the documentation it created. It generated a corporate resolution establishing an accountable plan and created expense reports that satisfied all the IRS requirements. My accountant was impressed with how thoroughly it handled everything and said it would definitely stand up to audit scrutiny.

If you're still waiting for your accountant and need to talk to an actual IRS agent about this (which might be a good idea for specific guidance), I highly recommend https://claimyr.com. I wasted DAYS trying to get through to someone at the IRS about my S-Corp expense questions last year. Claimyr got me connected to an IRS agent in about 15 minutes instead of the 2+ hour wait times I was experiencing. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c. The agent I spoke with provided specific guidance about handling business expenses paid personally before I established my reimbursement plan.

I can't believe I'm saying this, but I tried Claimyr after posting my skeptical comment and it actually worked. I got through to an IRS representative in about 20 minutes when I had previously spent over 3 hours trying with multiple disconnections. The agent I spoke with clarified that for my S-Corp situation, I needed to have formal documentation for any reimbursements, and that expenses like my home office could be handled through an accountable plan with proper substantiation. She also warned me about taking personal deductions for things that should be business expenses and vice versa. Was worth it just to get clear guidance directly from the IRS instead of trying to interpret contradictory advice online.

One thing nobody's mentioned yet - if you've been paying for stuff personally but it's 100% business, make sure you're not doing this long-term. The IRS can see this as "loaning" money to your business, which can create other tax issues if not documented properly. I learned this the hard way! Also, don't forget to pay yourself a reasonable salary if you're taking money out of the S-Corp as distributions. The IRS really watches for S-Corp owners trying to avoid payroll taxes by taking all distributions and no salary.

Also - watch out for health insurance! If you own >2% of an S-Corp, your health insurance premiums should be paid by the S-Corp, reported as income on your W-2, and then deducted on your 1040. Don't double-dip by having the S-Corp deduct them AND taking a personal deduction. That's an audit flag.

Thanks everyone for all the detailed advice! This is exactly what I needed. Just to clarify a few things based on what I'm reading: 1. My S-Corp should reimburse me for the laptop and software I paid for personally, then deduct those on the 1120-S 2. For my cell phone, I need to document the 70% business use and have the S-Corp reimburse only that portion 3. I should set up a formal accountable plan for ongoing reimbursements Quick follow-up question - if I get reimbursed by my S-Corp now (in April) for expenses I paid in January-March, does that still count for the 2024 tax year or does it become a 2025 deduction? I want to make sure I'm handling the timing correctly. Also really appreciate the warnings about reasonable salary and health insurance - I definitely need to review those areas too!

Just want to add another perspective here - I went through this exact situation with my S-Corp last year and made some mistakes that cost me. One thing I didn't see mentioned is the importance of getting your corporate bylaws and operating procedures documented properly BEFORE you start doing reimbursements. The IRS can challenge reimbursements if they don't follow proper corporate formalities. I had to go back and create board resolutions approving my expense reimbursement policy retroactively, which looked suspicious. Better to have everything documented upfront. Also, be really careful with that home office deduction. If your S-Corp is going to reimburse you for home office expenses, you need to establish a formal rental agreement between yourself and your corporation. The rent you charge should be reasonable for your area - I used comparable office space rates in my neighborhood as justification. One last tip - consider getting a separate business credit card for all S-Corp expenses going forward. It makes tracking so much easier and eliminates the need for most reimbursements. The corporation pays the bill directly and you never have to worry about the personal vs business expense classification issues.