What is an accountable plan?

Finaloop Team
February 6, 2023
What you need to know to set up your accountable plan and start saving.

As a small business, you need every tax benefit you can get.

Here's a tax benefit often forgotten by S and C corp owner-employees that you can implement today and enjoy huge tax savings.

It’s called an accountable plan.

If set up correctly, your business gets a deduction and you get tax-free cash out of the business by reimbursing yourself for expenses paid with personal funds.

How does an accountable plan work?

Say you pay $10k out-of-pocket for business-related expenses like home office, car, travel, etc. and your corp reimburses you as an employee.

Accountable plan vs. no accountable plan. Here’s the difference:

Accountable plan benefits

Here's how to set up an accountable plan

To get this done today here’s what you need:

  1. Document your reimbursement policy
  2. Keep track of ordinary and necessary business expenses you pay for
  3. Keep record of expenses
  4. Submit within a reasonable time

Let’s break it down.

1. Document the reimbursement policy

To keep the IRS at bay, put your policy in writing.

Include the time period for employees to submit expenses (best within 60 days), and the process they need to follow to submit the expense. Here's a free accountable plan template to help you get started. Just make a copy of it so you can start customizing it.

2. Ordinary and necessary expenses

Allowable expenses include:

• Home office, internet, & phone - based on the percent used for business

• Car - can be based on standard mileage rates

• Subscriptions & licensing fees

• Travel-related expenses - meals, hotel, car rental, etc.

3. Keep record of expenses

Keep receipts or bills of amount, time, and purpose of expense.

For car expenses, track mileage related to business trips and keep a log (try an app like Hurdlr or MileIQ)

4. Submit within a reasonable time

Submit your expenses to the business, based on the rules in your accountable plan, ideally within 60 days.

If the business advances funds, you should substantiate the related expense within a reasonable time (~120 days) or return the funds.

Don’t underestimate the potential tax savings you can get with an accountable plan.

About Finaloop

We are a technology company providing automated end-to-end accounting service to ecommerce businesses. Our system connects to your apps, syncs all your data and reconciles your books in real-time, replacing your bookkeeper, your accounting software, and your ecomm integrations. We offer reconciled books available 24/7, tax-saving insights, and a single place for all your financial data.

*The information provided on this website does not, and is not intended to, constitute legal advice. All information, content, and materials available on this site are for general informational purposes only. Readers are advised to consult with their attorney or accountant with any questions or concerns.*

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