S Corp Accountable Plan
One of the few things we work on to ensure a smooth tax year for our clients is ensuring that we have all owner reimbursements for mileage, home office, etc. accounted for throughout the year by having our clients adopt an S Corp Accountable Plan.
What is the purpose of an Accountable Plan?
An "Accountable Plan" a (reimbursement program which meets certain IRS regulations), S Corporation owner-employees can continue to deduct business expenses that they pay for personally by "passing" them along to the business. Essentially, The shareholder gets a tax-free reimbursement for the home office and other out-of-pocket expenses, while the S corporation gets a deduction for the reimbursed amount.
What qualifies & how to comply?
An accountable plan must meet three requirements to pass IRS muster:
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The expenses must have a business connection. The expenses must be incurred while the employee is performing work for the company, and must be ordinary and necessary expenses. These can include mileage for business-related driving, meals with clients and out-of-pocket travel expenses. They can also include a portion of mixed-use expenses – that is, those with a personal and business component, such as home office expenses, cell phones and home internet.
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There must be substantiation to support the deduction. This can be easily accomplished by submitting a detailed monthly or quarterly expense report with the relevant documentation attached. Apps, such as Expensify and ReceiptBank, or we can use the receipts bank built into QuickBooks online.
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Any excess reimbursements over actual expenses must be repaid promptly. If the S corporation provides an advance to the shareholder for travel expenses, any excess over actual expenses must be repaid within 120 days.
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To Comply:
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Sign and return via email (or upload into the Client Portal) the Agreement to Adopt an Accountable Plan. If you don’t have this yet, you can request it from any of our staff. Once there is a signed agreement, we will send you the form for reimbursement.
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Fill out the Q1 and Q2 Reimbursement Excel worksheet sent to you by our team. In the worksheet you can enter the total for each category. If you need help, please reach out to the St Pierre team.
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Write a check from the S Corp to yourself for the total as a tax-free reimbursement!
These checks should be written in a timely manner to ensure compliance.
Supports documentation is required.
What happens if you don't have an Accountable Plan?
Without an accountable plan in place, these reimbursements are taxable income to the shareholder and should be reported on their W-2.