An accountable plan is simply a formal reimbursement policy between you and your business. It allows you or your employees to submit business expenses that were paid personally and get reimbursed tax-free.
This applies to mixed-use expenses like your home office, cell phone, or internet bill, where part of the cost is personal and part is business.
Without a plan, the IRS can reclassify reimbursements as wages, meaning you’ll owe payroll and income tax on the payments.
Accountable Plans are critical for S Corp and C Corp owners because you’re considered an employee of your business. If you reimburse yourself for expenses personally paid, it must be done through an accountable plan to stay compliant.
Sole proprietors and single-member LLCs don’t need one since they can deduct expenses directly on Schedule C.
But if you have employees, no matter your business structure, you must have an accountable plan in place to reimburse them properly.
The IRS has four basic requirements for your plan to qualify:
- Business connection: Expenses must be directly related to your business.
- Substantiation: You must keep proof like receipts, dates, and descriptions for every reimbursement.
- No excess reimbursements: Any overpayment must be returned or reported as taxable wages.
- Timeliness: Reports and reimbursements should be done promptly, ideally every month.
Stick to these rules, and your plan will stay fully compliant.
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