The Accountable Plan for S Corp Owners

Everyone hates taxes. But what you might not have known is that there is a way to decrease them substantially with a small amount of work for a big reward if you have an S Corp structured company. This means of eliminating taxes and reimbursing yourself is outlined in the Accountable Plan. This plan allows you to receive reimbursement for business expenses while doing your job. Here’s how it works:

To give a quick example, say you use your personal phone for business purposes 60% of the time and for personal reasons 40% of the time. You can use an accountable plan to reimburse yourself for 60% of the cost. This means getting $60 (assuming your bill is $100 a month) out of your company, tax-free, to pay for your phone bill each month. Your business can then write that off as an expense.

There are many different types of expenses that can be eligible for reimbursement. Here are a few: 

• Home office supplies

• Meals

• Travel (Airfare and milage)

• Client entertainment 

• WIFI

• Phone 

• Exc.

S Corp owners can do this smoothly by keeping a diligent record of all business related expenses. Compliance with with the IRS is also a large component, and S Corp owners must follow three main steps in order to comply:

1. Business Connection: 

• Expenses reimbursed under the plan must have a business connection. This means the expenses must be incurred while performing services as an employee and must be directly related to the employer's business.

2. Substantiation: 

• Employees must substantiate their expenses by providing adequate documentation, such as receipts or invoices, to support the amounts claimed. This documentation should include details such as the date, amount, and business purpose of the expense.

3. Return of Excess Reimbursements: 

• Any excess reimbursements or advances must be returned to the employer within a reasonable period. If an employee receives more reimbursement than they are entitled to, they must return the excess amount to the employer.

When S Corp owners comply with these regulations, they make sure that the reimbursements received from the accountable plan are considered non-taxable income from the employee. The employer can also deduct the reimbursed expenses as business expenses on their tax returns. 

Being an S Corp, it can be very easy to save money through proper planning and judgment, and through the accountable plan, this is made possible. If you are looking for further information on how to save money and eliminate taxes, call or email me at (855) 396-3807 or Jim.Maddux@raymondjames.com. 

Disclosure:

Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.