An accountable plan is a way for S corporations to save taxes by reimbursing business expenses to their owners and employees without treating them as taxable income. Here are some key points about accountable plans:
- Requirements: An accountable plan must have a business connection, adequate substantiation, and return of excess advances or reimbursements .
- Benefits: An accountable plan can reduce the owner’s individual income tax, Social Security tax, and Medicare tax by shifting the business expense deduction to the corporation .
- Eligibility: An accountable plan can apply to any employee of the S corporation, including the owner. However, it does not apply to LLC members unless they elect to be taxed as an S corporation .
- Expenses: An accountable plan can cover various employee-related expenses, such as travel, meals, cell phone, internet, and charitable donations. The expenses must have a clear business purpose and be properly documented .
- Setup: An accountable plan is easy to set up and does not have to be in writing, but it is advisable to have a written policy that explains the rules and procedures for reimbursement .
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Contact Surya Padhi at Sure Financials for any questions and clarification. Surya Padhi is an expert who keeps current on tax law changes as well as a member of the National Association of Tax Professionals National Association of Tax Professionals (NATP) and New Homepage – National Association of Enrolled Agents (naea.org). Visit Welcome | Sure Financials & Tax Services, LLC (surefintaxsvs.com) for more information and contact us by calling +1908.955.0696.
