You pay for the home office, the phone, the mileage and the laptop with your own money because it is easier. Then the S-Corp either never reimburses you (and loses the deduction), reimburses you with a lump sum labelled "expenses" (which the IRS can treat as wages), or you deduct it on your personal return (which you cannot, since unreimbursed employee expenses stopped being deductible in 2018). The accountable plan is the one structure that gets the money back to you tax-free and gives the company the deduction.
This guide explains what an accountable plan is, the three rules a reimbursement has to meet, the expenses that usually go through it (home office, vehicle, phone, travel), how to document and book it, and how to set one up in an afternoon.
An accountable plan is a written policy under which the company reimburses employees (including a shareholder-employee) for business expenses they paid personally, and the reimbursement is excluded from the employee's wages. Under the plan, the company deducts the expense as its own; the employee receives the money with no income tax and no payroll tax. Without a plan, the same reimbursement is treated as compensation: taxable to you, subject to payroll tax, and still deductible to the company, which is a worse outcome on every line.
The plan matters to S-Corp owners more than to anyone, because a more-than-2% shareholder is treated as an employee for these purposes and cannot deduct unreimbursed expenses anywhere. The accountable plan is the only path for those expenses.
Miss any of the three and the reimbursement is a nonaccountable plan payment, which is wages.
| Expense | How it is measured | What the file needs |
|---|---|---|
| Home office | Business-use percentage of the home applied to rent or mortgage interest, utilities, insurance, repairs, and depreciation on the office space | Square footage calculation, the underlying bills, exclusive and regular use |
| Vehicle | Standard mileage rate per business mile, or business percentage of actual costs | Contemporaneous mileage log |
| Cell phone and internet | Business percentage of the bill | Bills and a reasonable allocation method, written down |
| Travel, meals, lodging | Actual cost (meals at 50% for the company's deduction) | Receipts, dates, purpose, who was present |
| Equipment and software bought personally | Actual cost | Receipt; the asset belongs to the company after reimbursement |
| Professional dues, education, subscriptions | Actual cost | Receipt and business purpose |
An S-Corp cannot take the home office deduction itself, and you cannot take it on your personal return as an employee. The accountable plan solves it: the company reimburses you for the business-use share of the home's costs. Measure the office (exclusive and regular use for the business), divide by the home's total area, and apply the percentage to the year's rent or mortgage interest, property tax, utilities, insurance, HOA and repairs. Depreciation on the office share of an owned home can be included, with the usual recapture consequences on sale. Do it monthly or quarterly on a one-page worksheet, pay it as a reimbursement, and keep the bills.
For a personally owned car used for the business, the accountable plan reimburses either the standard mileage rate times business miles, or the business percentage of actual costs (fuel, insurance, repairs, depreciation or lease). Both require a contemporaneous log of business miles with dates and purposes. A car owned by the company is a different situation: the company deducts its costs directly and the personal-use share is taxable to you as a fringe benefit. Owners with several vehicles, for example in a rental fleet, usually keep the fleet in the company and their personal car outside it; our guide on vehicle depreciation limits covers the company-owned side.
Each reimbursement is booked by the company as the underlying expense (office expense, vehicle expense, telephone), not as "reimbursement" and not as compensation, with the payment going to you. On your side it is nothing: not income, not a draw, not a distribution. The file for each reimbursement is the expense report: date, amount, category, purpose, receipt, and for the home office and vehicle the worksheet or the log. Keep the reports with the company's records, because in an audit the question is "show me the substantiation", and a bank transfer labelled "reimb" is not it.
An afternoon of setup, and every dollar you were paying personally becomes a company deduction and a tax-free reimbursement. HaraPro keeps the S-Corp's expenses, the reimbursements and the receipts together, and separates the company's books from your personal accounts so the reimbursement lands on the right side of both; the S-Corp bookkeeping page shows the setup.
A written policy under which the company reimburses a shareholder-employee for business expenses paid personally, with substantiation and return of any excess, so the reimbursement is deductible to the company and tax-free to the employee.
Not on the personal return. The company reimburses the business-use share of home costs under an accountable plan; the company deducts it and the owner receives it tax-free.
No, as long as the three rules are met: business connection, substantiation within a reasonable time, and return of any excess. Reimbursements that do not meet the rules are wages.
No. Rent is taxable income to you and disqualifies the space from the home office treatment. The accountable plan reimbursement is tax-free and gives the company the deduction.
An expense report per reimbursement with date, amount, category and business purpose, receipts for items over $75 and all lodging, a mileage log for vehicle use, and a square-footage worksheet with the bills for the home office.