What’s an Accountable Plan?
An accountable plan is used by S Corp owners to reimburse themselves for purchases and personal items that are also used by the business (aka mixed-use purchases). Home office and auto expenses are the most common expenses reimbursed through an accountable plan.
Although the items you've purchased are still considered personal expenses, since your business also uses them, you’re eligible to receive an employee reimbursement for a portion of these expenses. These reimbursements become a deductible expense of your business, lowering your tax liability. Win, win!
What’s the process for getting reimbursed?
Each month, your Collective Accounting Advisor will request your previous month's bank statements and for you to complete your Accountable Plan on your Collective Dashboard. To make the reimbursement, you’ll transfer money from your business bank account to your personal bank account. Your Accounting Advisor will then categorize the transactions as “employee reimbursement”.
Here’s an overview of how your accountable plan works:
Pay for mixed purchases with your personal account
Calculate the business portion using the accountable plan found on the reimbursement tab on your Member Dashboard
Transfer money from your business checking to your personal checking.
Upload your previous month's bank statement through the document section in your Member Dashboard
Your transactions will be categorized as “Employee Reimbursement” by your Collective Accounting Advisor
What expenses can I reimburse through my accountable plan?
The most common accountable plan reimbursements are for home office and auto expenses. Let’s break each of these down.
Home office expenses
For renters and homeowners 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.
The amount you can reimburse is based on the square footage of your home. Divide the square footage of your home office by the total square footage of your home (ex. 150 sq ft/2,000 sq ft). Then multiply that percentage by your home expenses (If math isn’t your thing, don’t worry. Our accountable plan worksheet does all the calculations for you).
Some notes on measurement:
If this is a room in your home, you would count the square footage
If this is a desk in your living room, count the square footage of your work area in the living room
You should not measure the entire area of a shared space such as your primary bedroom or living room, this must be a dedicated space
Home office expenses include:
Alarm or security service
Cleaning
Utilities
Rent
Renter’s insurance
HOA dues
Homeowner’s Insurance
Mortgage interest only (not your monthly principal payment). 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.
Auto expenses
For personal vehicles used for business, you don’t want to track gas, maintenance, repair, lease, and loan expenses for your car. Instead, 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 and the most up-to-date mileage reimbursement rate.
All expenses such as loan payments, repairs, maintenance, and gas should be paid for through your personal account. The exception is if the vehicle is registered under the name of your business and is 100% used for business. (Please discuss this with your Onboarding Accountant if you have a 100% business vehicle).
Resources to track mileage:
Odometer readings on a paper/digital log
Third-party software:
Mile IQ
Timeero
TripLog Beacon
Everlance,
QuickBooks Mileage Tracker
How does the Accountable Plan fit into Collectives’ process
After your call with a New Business Advisor, you’re now on the journey of operating as an S Corp owner. A big part of this is ensuring that your books are accurate, which is why monthly bookkeeping is included in Collective’s core services.
Our Accounting Advisors work diligently to clean your books and provide you with monthly reports so that your expenses are IRS-compliant. Your Accountable Plan is covered next in the Business Insights Call (Business Insights Agenda) and your Onboarding Accountant will walk you through your first accountable plan.
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.