Harness the Benefits of an Accountable Plan in Your BusinessNov 15, 2023
In this episode, Shannon dives into the topic of accountable plans and how they can help S Corporation owners save money on taxes. If you're curious about cutting down on self-employment taxes and maximizing your tax savings, this is an episode you won't want to miss.
So, what is an accountable plan? It's essentially an expense reimbursement policy for your business that allows you to reimburse yourself and your employees for personal assets used by the business. This is particularly useful if you sometimes pay for business expenses with personal funds or have expenses that operate in both personal and business realms.
But why do you need an accountable plan? Without one, any reimbursements you make to yourself could be considered taxable income. By having a written accountable plan in place, you can ensure that these reimbursements are not subject to additional taxes. Plus, setting up an accountable plan is relatively straightforward, and you just need to keep it documented in your corporate records.
The types of expenses you can reimburse with an accountable plan are varied. For example, if you have a home office, you can claim a business portion of expenses like mortgage interest, rent, insurance, utilities, and more. Similarly, if you use your vehicle for business purposes, you can reimburse a portion of its costs using the standard mileage rate. Just make sure you have valid business purposes and proper documentation, such as receipts or evidence, to substantiate these expenses.
If you're concerned about the bookkeeping process, don't worry. You can use normal expense titles in your accounting software to track accountable plan reimbursements. Simply label them accordingly, like "Internet Expense" or "Home Office," so that it's clear where the funds are being allocated for tax purposes.
And what about the option of giving yourself an advance instead of reimbursing expenses? While this is allowed, you must be diligent in ensuring that any unused portion is returned, and only expenses related to business purposes are ultimately reimbursed.
Now, you might be thinking, "Why do I need an accountable plan if I already claim deductions for home office or vehicle expenses on my tax return?" Well, as an S Corporation owner, the accountable plan is the preferred method, providing additional benefits by allowing for direct reimbursement from the business.
We hope this overview of accountable plans sparks your interest and encourages you to take advantage of potential tax savings. Don't forget to tune in to the full episode for more in-depth information and practical tips on implementing an accountable plan.
As always, keep in mind that the information shared on the podcast is for educational purposes only and is not individual tax advice. If you have specific questions or need personalized guidance, it's best to consult with a tax professional.