Definition
An accountable plan is an arrangement that lets a business reimburse employees, including owner-employees, for business expenses tax-free.
How It Works
Under an accountable plan, the business reimburses documented business expenses such as home office costs, mileage, or travel. The reimbursements are deductible to the business and not taxable to the employee, provided the expenses are substantiated and any excess is returned.
Example
An S-corp owner is reimbursed for the business-use portion of their home office and vehicle through an accountable plan, deducting the cost at the business level tax-free.
When It Works Best
It works well for S-corp owners who incur real business expenses personally and want to move the deduction to the business cleanly.
Who It Applies To
Businesses reimbursing employees or owner-employees for business costs.
Watch-Outs
Documentation is essential. Reimbursements without substantiation, or without returning excess amounts, become taxable wages.
