An accountable plan for an S Corporation sets the policy for how employees will be reimbursed by the corporation for business expenses paid personally. The adoption of an accountable plan should be included in the board minutes and kept in the corporate book of record (a 3-ring binder purchased at your office supplies store).
The Tax Cuts and Jobs Act (TCJA) eliminated the federal itemized deduction on a taxpayer’s personal tax return for unreimbursed employee expenses. Without an accountable plan, the employee would be out of luck with getting work expenditures reimbursed. If the accountable plan is not in place and the employer reimburses the employee, this would have the unintended consequences of being taxable wages and included in their payroll, causing more payroll taxes for the employer and more taxable income for the employee.
Your accountable plan does not technically have to be in writing, but it is a good precaution to include in your book of record. There are a few procedures to have to be in place for the accountable plan to hold up if ever audited.
- The reimbursement must be for business related expenses
- Documentation should show:
- The amount and business purpose of the expense
- Time and place of any travel
- Both substantiation of expenses (expense report) as well as reimbursement should occur within a reasonable period of time.
For a sample written accountable plan provided by the Bradford Tax Institute website please, click here.
Please understand that I cannot give you specific investment or legal advice, just guidance in these areas, and you should consult a professional licensed in these areas for specific advice before making any final decisions.
