As an S-Corporation owner, you want to maximize tax deductions while staying compliant with IRS rules. One of the best ways to do this is by using an Accountable Plan—a tax-efficient method for reimbursing business expenses without increasing your taxable income.
What is an Accountable Plan?
An Accountable Plan is an IRS-approved reimbursement arrangement that allows an S-Corp to reimburse employees (including shareholder-employees) for legitimate business expenses without treating them as taxable income. This means the company gets a tax deduction, and the employee avoids reporting the reimbursement as income.
To qualify, an Accountable Plan must meet three key criteria:
Business Connection – The expenses must be directly related to the business (e.g., mileage, travel, home office, meals, etc.).
Substantiation – Employees must provide proof of expenses (receipts, mileage logs, or invoices) within a reasonable time.
Return of Excess Payments – If the company provides an advance or overpays for expenses, the employee must return the excess.
Why Should an S-Corporation Use an Accountable Plan?
Using an Accountable Plan provides major tax advantages:
✅ Tax Deduction for the Business – The S-Corp deducts the reimbursed expenses, reducing taxable income.✅ No Taxable Income for Employees – Employees and owners do not report reimbursements as income.✅ Avoids Payroll Taxes – Reimbursements under an accountable plan are not subject to Social Security, Medicare, or unemployment taxes.
Common Expenses Covered
Here are some typical expenses that an S-Corp can reimburse under an Accountable Plan:
Business mileage (using the IRS standard mileage rate)
Home office expenses (proportionate to business use)
Business meals (50% deductible under IRS rules)
Travel expenses (flights, lodging, transportation)
Office supplies & equipment
Why S-Corp Owners Need an Accountable Plan
Unlike sole proprietors, S-Corp owners cannot deduct business expenses directly on their personal tax returns. Instead, these expenses must be reimbursed by the corporation under an Accountable Plan to ensure proper tax treatment. Without one, expense reimbursements could be considered taxable income, increasing both personal and payroll taxes unnecessarily.
How to Set Up an Accountable Plan for Your S-Corp
To stay compliant and maximize tax benefits, you should:
Create a Written Accountable Plan Policy – Outline the rules, reimbursement process, and required documentation.
Require Proper Expense Documentation – Use receipts, mileage logs, and records to support reimbursements.
Reimburse Employees Timely – Payments should be made in a reasonable timeframe after expenses occur.
By implementing an Accountable Plan, you ensure that your S-Corporation remains tax-efficient and compliant, saving money on taxes while properly deducting business expenses.