Understanding Your Accountable Plan: A Guide for S Corp Owners
Hey there, S Corp owner! Let's talk about something that can save you money and keep the IRS happy: your accountable plan. Don't worry if it sounds complicated – we're here to break it down for you.
What's an Accountable Plan, Anyway?
Think of an accountable plan as your ticket to getting reimbursed for stuff you buy that's used for both personal and business purposes. Home office expenses and auto costs are the big players here.
Here's the awesome part: even though these are technically personal expenses, since your business is using them too, you can get reimbursed for a portion of the costs. And guess what? These reimbursements become a deductible expense for your business, lowering your tax bill.
What Can I Reimburse Through My Accountable Plan?
Home Office Expenses
To be eligible, your office space must be:
Your principal place of business
Used exclusively and regularly for business
The amount you can reimburse is based on the square footage of your home. Don't worry about the math – our accountable plan worksheet does all the calculations for you!
Eligible home office expenses include:
Alarm or security service
Cleaning
Utilities
Rent
Renter's insurance
HOA dues
Homeowner's Insurance
Mortgage interest (not your monthly principal payment)
Mileage
For personal vehicles used for business, you'll track business miles driven and multiply it by the annual IRS mileage reimbursement rate. Our accountable plan worksheet includes a section for your mileage with the most up-to-date rate.
Pro tip: Use apps like Mile IQ, Timeero, TripLog Beacon, Everlance, or QuickBooks Mileage Tracker to make tracking a breeze!
Phone and Internet Expenses
If you use your personal phone and internet for business purposes, you can get reimbursed for the business portion of these expenses. Here's how it works:
Calculate the percentage of your phone and internet use that's for business.
Apply that percentage to your monthly bill.
Include this amount in your accountable plan worksheet.
For example, if 50% of your phone use is for business and your monthly bill is $100, you can reimburse yourself $50 through your accountable plan.
Remember:
Keep your phone and internet bills as documentation.
Be prepared to justify your business use percentage if asked.
If you have a separate phone or internet connection used 100% for business, don't include it in your accountable plan. Instead, pay for it directly from your business account.
How Do I Get Reimbursed?
It's pretty straightforward:
1. Pay for mixed-use purchases with your personal account.
2. Calculate the business portion using the accountable plan worksheet found in the Accounting -> Reimbursement section of app.collective.com.
3. Transfer money from your business checking to your personal checking.
4. Upload your previous month's bank statement through the document section in your Member Dashboard.
5. Your Collective Accounting Advisor will categorize the transactions as Office Expense, Travel, and Utilities which correspond to the Home Office, Mileage, and Phone/Internet sections of the accountable plan worksheets.
How Do I Make Sure My Expenses Are Valid and Deductible?
To keep everything above board with the IRS, you need to follow these key steps:
1. Timely Substantiation
Keep all your receipts and records for your expenses.
Submit an accountable plan worksheet through app.collective.com.
Do both of these within 60 days of when you spent the money.
2. Timely Reimbursement
Your company needs to pay you back the exact amount on your accountable plan worksheet.
This payback needs to happen within 60 days of the month on the worksheet.
For example, if you're expensing stuff from March, you need to be paid back by the end of May for it to count.
3. Proper Record Keeping
Keep detailed records for each category:
Home Office: Records of your home expenses and how you figured out the business use percentage.
Mileage: A log with the date, where you went, why, and how many miles you drove for each business trip.
Phone/Internet: Bills showing what you paid and how you calculated the business use percentage.
Hang onto these records for at least 3 years after you file your tax return or when it was due, whichever is later.
Why Proper Documentation Matters
Keeping good records isn't just about being organized – it's about protecting yourself. If the IRS comes knocking, you want to be ready. Inadequate documentation could mean disallowed deductions, which could lead to a bigger tax bill plus penalties and interest. Not fun!
How Collective Has Your Back
Your accountable plan is a key part of our process. If you have any questions about your accountable plan or need a hand with the process, don't hesitate to reach out to your Collective team. We're here to help you succeed!
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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.