Contents
***This is an older process for monthly reimbursement and used in special occasions on a member-by-member basis. Please reference this article for using the new process on the Collective Dashboard.
Overview
Quick Tip: The heart of this article is this spreadsheet. It's mentioned down below as well. It'll take you 1 minute each month to fill out the worksheet. For your first pass, set aside 15 minutes to read this article, watch the video, and attempt your first worksheet.
Mixed purchases benefit both your business and personal life. Rent for your home and and mileage you put on your car are common examples. An Accountable Plan allows S Corp owners to pay for mixed purchases with personal funds and reimburse themselves for the business portion. This makes it appear as an expense on your Profit & Loss report. The general steps are:
Pay for mixed purchases with personal money
Calculate the business portion using the worksheet
Transfer money from your business checking to your personal checking.
Upload the spreadsheet through the document section in your Member Dashboard
We will categorize it in the accounting software as a "Employee Reimbursement"
Common Examples
For Renters
Divide the square footage of your home office by the total square footage of your home (ex. 150 sq ft/2,000 sq ft). Multiply that percentage by home renting expenses: rent, utilities, renter's insurance, etc.
For Homeowners
Divide the square footage of your home office by the total square footage of your home (ex. 150 sq ft/2,000 sq ft). Multiply that percentage by home owner expenses: mortgage interest only, property tax, HOA dues, utilities, homeowner's insurance, etc. Any principal paid on your mortgage is not an expense, it's paying off a loan, so it can't be included in this process.
Note: For both renters and homeowners, to be eligible for the home office reimbursement, your office space generally must be exclusively used for business on a regular basis and it also must be your principal place of business.
Auto Expenses
Don't track gas, maintenance, repair, lease, and loan expenses for your car. Instead, track your business miles driven and multiply by the annual IRS mileage reimbursement rate. Options to track miles are:
Odometer readings on a paper/digital log
Third-party software: Mile IQ, Timeero, TripLog Beacon, Everlance, etc.
Action
These detailed steps and the spreadsheet will walk you through the entire process.
Complete this spreadsheet of expenses every month. Click the link and download a copy to your computer. If you are a google user, click "open with" and select "Google Sheets". Please don't request edit access.
Complete this pdf each year to confirm your annual Accountable Plan policy
Save the spreadsheet, along with backup receipts and any documentation associated with the expenses.
Upload the spreadsheet to your Member Dashboard
Transfer funds from your business checking account to your personal checking account with a check or an online transfer. Make a note in the memo of the check or bank transfer (if bank allows) for the month the transfer is for. The transferred amount must match the green box in the worksheet titled "Total Employee Reimbursement Expense". Save a copy of the check or a print-to-pdf of the online transfer as documentation of payment.
Save all documentation for 3 years.
The IRS wants this process repeated consistently once a month.
Please note: Reimbursements should not be ran in Gusto
Optional Action (Onboarding Only)
Follow steps 1-4 above for a one-time only "catch-up" amount that covers prior months. Do not go beyond the first of the month of your Form 2553 Box E date. Ask [email protected] if you are unsure of that date or form. Instead of inputting a single month in the "Month" field of the spreadsheet linked above, you will input a range of months instead. For example, if the current month is August, you will input "January - July" in the "Month" field. Since in this case the spreadsheet covers multiple months, the amount may be so high such that you do not have the funds to reimburse yourself. In this case, speak with your accounting advisor who can make a journal entry in QBO to record the "catch-up" amount. Disregard step 5 above in this case.
Tips
The accountable plan is a great tool to implement and we want to ensure that you are taking all the optimal deduction while staying in compliance with the IRS. We have established some safe guards to ensure that your accountable plan is being used properly:
Home office percentage: It can be tempting to state that your home office utilizes a large portion of your home to increase your deduction. We want to remind you that the square footage of your home office must be EXCLUSIVELY for business use only. In most cases, we do not recommend that the square footage of your home office exceeds 25% of your entire home. If you have a unique case and in fact have a home office that is in excess of 25% of your entire home then we will require some additional documentation before we can allow you to claim the deduction.
Phone and Internet: It may feel like all you do is work, work, work and you need your phone and internet to do just that. The rules on documenting phone and internet usage for an accountable plan are, like most things with the IRS, fuzzy, and heavy-handed. It would also be highly difficult to justify a mixed use expense where you’re using more than 70% of your phone and internet for business to the IRS. If you were awake from 7am to 10pm every day, you would need to work 11 hours a day solely on business things using your internet and phone in order to exceed 70% usage. (Quick GSheets for playing around fun). So our worksheet does not allow you to exceed, that's right you guessed it, 70%.
Have any other questions?
Reach out to the Collective team at [email protected] 😉
Disclaimer: The information contained in this document is provided for informational purposes only and should not be construed as financial or tax advice. It is not intended to be a substitute for obtaining accounting or other financial advice from an appropriate financial adviser or for the purpose of avoiding U.S. Federal, state or local tax payments and penalties.