Accountable plans for S-Corps and Partnerships

by | Apr 22, 2024 | Accounting, Business

The topic of accountable plans comes up quite a bit in my day-to-day conversations with clients. Most often it’s the folks who are used to operating their sole proprietorship businesses and then make a switch to an S Corp or end up creating a partnership and suddenly they aren’t sure what happens with deductions like mileage, or business use of home, or other business deductible expenses they were used to taking as a sole proprietor on their Schedule C.

This is where an accountable plan comes in!

Expenses such as mileage on the personal vehicle, business use of home, certain travel reimbursements and other related expenses can be included in the accountable plan.

There are 4 main requirements for the accountable plan to be accurate and compliant with IRS requirements:

  1. To establish an accountable plan, the S Corp or partnership should adopt a written plan that outlines the reimbursement policies and procedures. This plan should be communicated to employees/shareholders or partners in a partnership, and everyone should be clear on the requirements for substantiating expenses and returning any excess reimbursements.
  2. The business expenses have to have a clear business connection. This means they must be incurred while the employee (or shareholder) is performing services as an employee of the S Corp or partnership.
  3. Employees must substantiate their expenses by providing detailed records, such as receipts or invoices, to support the amounts, dates, and business purposes of the expenses.
  4. Reimbursements for these expenses have to be timely. We usually recommend to establish a monthly or at least quarterly frequency, which should be discussed in the written accountable plan and documented accordingly.

If you have questions on your existing accountable plan, or need help establishing one, please drop me a line at [email protected]