As an S corp, you have several expenses that you pay for. How you pay for these expenses depends on the type. Expenses that are 100% Business such as advertising or office supplies should be paid directly from your business account. 100% Personal such as groceries or salon services should be paid from your personal account (don’t be tempted to co-mingle funds).

But what about the home that I use as my office? Or the car that I use to meet clients? Those are examples of mixed-use expenses and you’d want to use an accountable plan to get reimbursed. What's reimbursement? Reimbursements are nontaxable payments to an employee used to repay business-related expenses that the employee has paid out-of-pocket, such as your rent or mortgage, gas, car payments, etc.

Setting up an accountable plan is one of the best methods for you to get cash out of your business. This article will show you how your S corp can write off certain expenses, such as your home office, travel, and per diem as they are common for the business-of-one.

Remember, you wear two hats in your company - you are the employer as well as the employee. Whenever an employee is mentioned here, that refers to you the owner-employee of your company.


What’s an Accountable Plan?

An accountable plan is a formal reimbursement arrangement to pay employees for their business expenses.

Why use an Accountable Plan?

It complies with IRS regulations. Without an accountable plan for reimbursing employee expenses, these amounts must be included in their income and employees must pay tax on these benefits.

How does an Accountable Plan work?

Accountable plans include reimbursement for a number of different employee-related expenses:

All accountable plans should have the following arrangement

  1. must have a business purpose
  2. the employee must provide the employer with detailed information on these expenses, including date, time, place, amount, and business purpose for the expense, and
  3. the employee has to return excess reimbursements within a reasonable and specific period of time.

Then, once a quarter or once a month, the employee creates a detailed expense report and the S corp pays the employee (This could be a simple transfer of funds from your business to your personal account). The S corporation gets a deduction and the employee gets a tax-free reimbursement. Awesome, right?

What about Record Keeping?

Although the IRS does not require you to submit your expense reports and written plan, you should keep them for your records for at least 4 years. Document all transactions with employees for their reimbursement of expenses, including receipts to show that all the requirements of the accountable plan were followed.

How to Record Expenses in QBO

In QBO, create an account called Employee Reimbursement. Here’s how:

Go to Settings ⚙, then select Chart of Accounts.

Select New to create a new account.

In the Account Type, ▼ dropdown menu, choose Expenses as the account type.

In the Detail Type ▼ dropdown, select the Other Business Expenses

Name your account Employee Reimbursement

Add a description “Home office, travel and vehicle expenses”

Every time you transfer funds or write a check to your personal account, you will categorize the transaction as Employee Reimbursement in the banking screen.

Is there a sample plan my business can use?

Here is a sample plan that you can use to draft an accountable plan for your S corp. We used Collective as the example company and Raquel as the example officer. Simply replace it with your company name, your name, and be sure to retain a copy for your business records.


Accountable Plan for Business Expense Reimbursement

Collective desires to establish an expense reimbursement policy pursuant to Treasury Reg. 1.62-2, upon the following terms and conditions:

1. Employees of Collective (“the Company”), and in certain cases non-employees, shall be reimbursed for any ordinary and necessary business and professional expenses incurred on behalf of the Company, only if the expenses are adequately accounted for as required by the Company policy on expense reimbursements.

Adequately account for means providing the company with a statement of expense, an account book, a diary, or similar record in which you entered each expense at or near the time you had it, along with the documentary evidence (such as receipts) of your travel, mileage, and other business expenses. IRS Publication 463 provides examples of what is needed to substantiate your business and professional expenses.

2. Under no circumstances will Collective reimburse employees for business or professional expenses incurred on behalf of the Company that is not properly substantiated. The Company and employees understand that this requirement is necessary to prevent our expense reimbursement plan from being classified as a “non-accountable” plan.

The substantiation requirements of this policy also apply to non-employees (e.g. Independent Contractors) conducting business with Collective. If a non-employee does not properly account to the Company, for his or her expenses, the individual cannot be reimbursed.

3. All expenses must be substantiated within 60 days or less after the expense is paid or incurred.

4. All charges to company credit cards must be substantiated in the same manner as the above-mentioned reimbursements.

5. Advances that are not substantiated within a reasonable period of time must be returned (paid back) within 120 days or less after the expense is paid or incurred.

Company officer: Raquel Deodanes

Date: October 27, 2020

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