Accountable plan

An accountable plan under IRC Section 62(a)(2)(A) is a written reimbursement arrangement between an employer and an employee (including an owner-employee) that lets the employer reimburse business expenses paid personally. Reimbursements made under a qualifying accountable plan are:

• Deductible to the business (no fringe-benefit tax to either party)
• Tax-free to the employee (not added to W-2)

Why owner-employees care

S-Corp owners can't deduct unreimbursed business expenses on their personal returns (the TCJA eliminated this). Without an accountable plan, expenses like home office, mileage, phone, supplies, and professional development are stuck — paid personally, not deducted.

With an accountable plan in place, the business reimburses these expenses, the owner gets the money tax-free, and the business deducts them. Net effect: a write-off that wouldn't otherwise exist.

Plan requirements (Reg. 1.62-2)

1. Business connection: expenses must be ordinary and necessary business expenses
2. Substantiation: receipts, mileage logs, business purpose documented
3. Return of excess: any amounts in excess of substantiated expenses must be returned within a reasonable time

If any of these fail, the reimbursement becomes additional wages — taxable to the owner.

Common reimbursable items

• Home office (per the simplified or actual method)
• Vehicle mileage (IRS standard rate)
• Cell phone (business portion)
• Internet (business portion)
• Continuing education + professional development
• Subscriptions used for business
• Travel
• Supplies purchased personally

Setting one up

A short written document is enough. Most CPAs can provide a template. Monthly expense reports + receipts + reimbursement checks complete the trail.