Getting Reimbursed for Business Expenses with Your S Corp Accountable Plan

Note: This article covers how your S Corp owner-employee can be reimbursed for business expenses using the integrated Accountable Plan feature, which is a key benefit of Collective's S Corp tier. This process differs from the LLC tier, where LLC owners capture Out-of-Pocket expenses through their Collective dashboard.

Why Your Accountable Plan Matters

As an S Corp owner, you are an employee of your business, and that comes with a smart way to handle business purchases you make with personal funds: the Accountable Plan. This plan is the formal, IRS-approved process S Corp owners use to reimburse themselves for these expenses, turning them into legitimate business deductions.

At its core, the Accountable Plan is what keeps your personal and business money clean and compliant. These reimbursements are a win-win: your business gets to deduct the expense, lowering its taxable income, and you receive the money back tax-free.

Under an accountable plan, there are two main categories of expenses you could be reimbursed for:

• Mixed-Use Expenses: Costs for personal assets that are also used for your business, such as your home office and personal vehicle.
• Out-of-Pocket Expenses: 100% business-related costs that you paid for with personal money (e.g., your personal credit card or cash).

Keeping Reimbursements Tax-Free: The IRS Timing Rules

To ensure your reimbursements remain tax-free under the IRS's Accountable Plan rules, your expenses must meet two crucial timing requirements. Collective's platform automatically enforces these rules to help keep your S Corp compliant.

1. Expenses Must Be Incurred After Your S Corp Election Date

You can only reimburse expenses from your S Corp election date forward. You cannot reimburse expenses incurred before your S Corp election became effective.

• For Example: If your S Corp election date was June 1, 2025, you cannot reimburse expenses from January through May—only expenses from June 1 onward qualify.
• Why This Matters: IRS rules require that accountable plan reimbursements must be for expenses incurred while performing services as an employee of your S Corp. Before your election date, you weren't yet an S Corp employee.

2. You Must Submit Expenses Within 60 Days

Each expense must be submitted for reimbursement within 60 days of when you paid for it. If you miss this deadline, the IRS treats the reimbursement as taxable income instead of a tax-free reimbursement.

Best Practice: Submit your expenses monthly to avoid missing the 60-day window.

What Expenses Can I Reimburse?

1. Mixed-Use Expenses

Mixed-use expenses are personal expenses where a portion can be allocated to your business. The accountable plan allows you to calculate the business-use percentage and reimburse yourself for that part of the cost.

Home Office Expenses

To be eligible for the home office reimbursement, your office space must be your principal place of business and used exclusively and regularly for business activities.

The reimbursement amount is based on the percentage of your home used for business. You calculate this by dividing the square footage of your office by the total square footage of your home. For example, a 150 sq. ft. office in a 2,000 sq. ft. home has a business-use percentage of 7.5% (150 / 2000). You can then reimburse yourself for 7.5% of your eligible home expenses.

• A few notes on measurement:
  • If you use a dedicated room, measure the square footage of that room.
  • If you use a specific area within a larger room (e.g., a desk in a living room), only measure the square footage of your dedicated work area. You cannot claim the entire shared room.
• Eligible home office expenses include: Rent, Mortgage interest (not the principal payment), Utilities, Homeowner's or renter's insurance, HOA dues, Alarm or security services, and Home cleaning services.

Phone and Internet Expenses

Your personal cell phone and home internet bills are also mixed-use expenses. You can reimburse the business-use portion of these bills.

Unlike the home office, there is no strict formula. You must make a reasonable estimate of the percentage you use your phone and internet for business. For most people, this is between 50-70%, but you should choose a percentage that accurately reflects your work habits. You would pay the entire bill from your personal account, then include the business portion (e.g., 70% of your $100 internet bill = $70) in your monthly accountable plan submission.

Auto Expenses

When you use your personal vehicle for business, you don't have to track individual costs like gas, maintenance, or repairs. Instead, the IRS allows you to use a simplified standard mileage rate (adjusted annually by the IRS). You simply track the business miles you drive and multiply that number by the current IRS mileage rate. Our accountable plan worksheet always has the up-to-date rate and handles the calculation for you.

• How to track mileage: Maintain a digital or paper mileage log with dates, destinations, and purpose of each trip. You may also use a third-party mileage tracking app like MileIQ, Everlance, or the QuickBooks Mileage Tracker.
• A Note on Payment: All vehicle-related costs (loan/lease payments, gas, insurance, repairs) should be paid from your personal account. The only exception is if your vehicle is registered in your business's name and is used 100% for business. If this applies to you, please discuss it with your Accountant.

2. Out-of-Pocket Expenses

These are the simplest to track. An out-of-pocket expense occurs when you use personal funds to pay for an item or service that is 100% for your business.

• Common examples include: Software subscriptions or apps, Office supplies, Client meals or entertainment, Business travel costs, Professional development courses or membership dues, and Postage and shipping costs.

The rule is simple: if you paid for a legitimate business expense personally, you can reimburse yourself for the full amount.

The Reimbursement Process: A Step-by-Step Guide

1. Pay for Expenses
   1. Pay for out-of-pocket business expenses with your personal funds. Your regular mixed-use bills (rent, mortgage, utilities) will also be paid from your personal accounts.
2. Submit Your Plan
   1. Navigate to “Accounting” —> “Reimbursements” to add your expenses (we’ll also send you a reminder task every month). Complete your Accountable Plan with your mixed-use and out-of-pocket expenses.
      1. For Mixed-Use Expenses: The reimbursable amounts will be calculated as you complete the form
      2. For Out-of-Pocket Expenses: Add these expenses at the bottom of the form
      3. Note: If you do not have any expenses for the month, submit the form for $0
3. Transfer Your Reimbursement
   1. Once your plan is submitted, transfer the total reimbursement amount from your business bank account to your personal bank account. This is a single transfer that covers all expenses for the month

Disclaimer: The information contained in this document is provided for informational purposes only and should not be construed as legal, financial, or tax advice. It is not intended to be a substitute for obtaining legal, accounting, or other financial advice from an appropriate and/or licensed  adviser, or for the purpose of avoiding U.S. Federal, state or local tax payments and penalties.