Are you an S-Corp owner? If you want to deduct things like mileage, cell phone, internet, and home office expenses – make sure you have an accountable plan in place!
What in the world is an accountable plan?
An Accountable Plan provides non-taxable reimbursements to the employee shareholders for business expenses and the employee shareholder is not required to report the income or expenses on their individual income tax return.
Additionally, the employer (your business) may deduct eligible expenses in full with the exception of the non-deductible portion of business meals and entertainment. The employer has no additional reporting requirement for tax purposes, however they may include the annual amount of reimbursed expenses on Form W-2, Box 14, if desired.
Why is an accountable plan important?
Without an accountable plan, those reimbursements are supposed to be treated as taxable income on the shareholder’s W-2. Yikes!!
How do I implement an accountable plan?
“Qualified Accountable Plans” must include the following:
- The shareholder employee expenses must have a business purpose and the expense must be a deductible business expense for the employer.
- The employee must submit receipts, mileage records, information regarding travel and meals, including the dates of travel and business purpose and for meals the receipts must include the
purpose of the meal and who attended the meal. This employee record of expenses must be provided to the employer within a reasonable period of time.
- The employee must return any excess reimbursement advance payments within a reasonable
period of time.
Need a sample accountable plan? Download one below!