Using an accountable plan, employers can provide their employees tax-free reimbursement for business expenses.
Commonly referred to as reimbursement for business expenses and expense reimbursement.
Do I Qualify for the Accountable Plan?
An accountable plan allows employees, including owner-employees, to be reimbursed for expenses paid out of pocket. The expenses become deductions to the business, and the employee or owner-employee can be reimbursed, creating non-taxable cash flow to them.
2022 Accountable Plan Details
An accountable plan allows employees, including owner-employees, to be reimbursed for expenses paid out of pocket. The expenses become deductions to the business, and the employee or owner-employee can be reimbursed, creating non-taxable cash flow to them. Without an accountable plan, the payments to the employee or owner-employee could be considered additional wages by the IRS.
Common examples of expenses that can be reimbursed through an accountable plan include mileage, auto expenses, other travel expenses and business meals. Accountable plans don't have to be in writing, but a written version of the plan may be needed to prove that it meets IRS requirements.
A written expense reimbursement policy should outline:
• The required time period for submitting requests
• The process for submitting requests, including documentation to substantiate amounts
• The process for returning excess reimbursements
• The types of expenses that are reimbursable
• The maximum amount that can be reimbursed through this process (if any)
• Preferred low-cost suppliers (if any)
There are some exceptions to the substantiation requirements, including certain meal reimbursement amounts related to non-lodging costs per IRS per diem rates. Excess reimbursement funds should be returned to the employer within 120 days of their disbursal.
If you have a business that isn't a Schedule C, you can use an accountable plan to reimburse yourself for the business use of your home, similar to the home office deduction for sole proprietors.
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• Reduced taxable income and self-employment tax for the business owner.
• Reimbursements excluded from employees’ taxable income.
• Additional expense tracking, paperwork and record keeping (can be mitigated with use of apps and other software, such as MileIQ).
Assumptions When Taking the Accountable Plan
• The reimbursed expenses weren't previously used to receive deductions through other tax strategies.
• Home Office Deduction
• Business Travel Expenses
• Business Meal Expenses
Requirements to Claim the Accountable Plan
An accountable plan must meet three rules:
• The expenses must have a business connection.
• Employees must adequately document the expenses and report them to the employer within a reasonable time.
• Employees must return any excess reimbursements to the employer within a reasonable time.
Business Entities That Can Claim the Accountable Plan
• Schedule C
• Schedule E
• Schedule F
• Farm Rental
• S Corporation
• C Corporation
The material discussed on this page is meant for general illustration and/or informational purposes only and is not to be construed as investment, tax, or legal advice. You must exercise your own independent professional judgment, recognizing that advice should not be based on unreasonable factual or legal assumptions or unreasonably rely upon representations of the client or others. Further, any advice you provide in connection with tax return preparation must comply in full with the requirements of IRS Circular 230.