Accountable Plan

An accountable plan is a formal reimbursement arrangement that lets a business repay owners and employees for business expenses they paid personally, with the reimbursement deductible to the company and tax-free to the recipient. Three requirements apply: the expense must have a business connection, it must be substantiated with receipts and records within a reasonable time, and any excess advance must be returned. Without an accountable plan, reimbursements are treated as wages subject to income and payroll taxes. For S corporation owners the plan is essential plumbing: employees can no longer deduct unreimbursed business expenses on their personal returns, so home office costs, personal cell phones, mileage, and travel paid personally are lost deductions unless the corporation reimburses them through a written plan. The plan should be adopted in writing and reimbursements processed with documentation, typically monthly or quarterly.