At a glance
- What it is
- A written company policy for reimbursing employees, including owner-employees, for business expenses they pay personally.
- What it saves
- Income tax on costs you’d otherwise pay with after-tax money. The business deducts the reimbursement; you don’t report it as income.
- Best fit
- S corp and C corp owner-employees.
- Main catch
- Every reimbursement needs receipts or logs, submitted on time, with any excess returned.
- Common items
- Home office, cell phone, and business mileage on a personal vehicle.
Key takeaways
- An accountable plan is a written company policy that lets an S corp or C corp reimburse owner-employees tax-free for business costs they pay personally.
- It fits owner-employees who work from home, use a personal phone for business, or drive a personal vehicle for work.
- In the illustrative example, $6,000 of reimbursed home office, phone, and mileage costs saves about $1,440 federal and $270 Oklahoma personal income tax.
- The catch: every reimbursement needs receipts or logs submitted on time, and any excess must be returned, or it's treated as taxable wages.
Watch the story
A one-minute story about this strategy. Illustrative story; the people are fictional and are not clients. See all story videos.
The numbers
Picture an S corp owner who works from a home office, uses a personal phone for business, and drives a personal car to client sites. Over the year, the business share of those costs comes to $6,000:
For illustration purposes. Tax law may change, which may change these calculations slightly.
| Home office (business share of rent or interest, utilities, insurance) | $3,000 |
| Cell phone (business share) | $600 |
| Business mileage, at the IRS standard rate, from a mileage log | $2,400 |
| Reimbursed by the business | $6,000 |
Personal tax (federal and Oklahoma)
| No plan (owner pays) | Accountable plan | |
|---|---|---|
| Deduction that reduces the owner’s taxable income | $0 | $6,000 |
| Federal income tax saved ($6,000 × 24%) | $0 | $1,440 |
| Oklahoma income tax saved ($6,000 × 4.5%) | $0 | $270 |
Without a plan, the owner pays the $6,000 with after-tax dollars and gets no deduction. With the plan, the S corp deducts the reimbursement, which lowers the profit flowing to the owner’s return, and the $6,000 comes back to the owner tax-free. Federal savings are a bit lower if the owner also claims the QBI deduction.
Don’t just pay yourself extra salary to cover these costs. Salary is taxable to you and carries payroll tax. A reimbursement under an accountable plan is neither.
Could this strategy work for your business?
In a free tax analysis, your tax strategist checks whether it fits and what it could save, using your real numbers.
How it works
- Adopt a written accountable plan. A short company policy, approved by the business, that sets out what gets reimbursed and how.
- Pay the costs and keep records. Receipts for phone and home costs, a mileage log for business driving, and a home office calculation based on square footage.
- Submit an expense report. Monthly or quarterly, with the support attached.
- The business reimburses you. From the business account, booked as a business expense, not as salary or a distribution.
Who it fits
- S corp and C corp owner-employees who pay business costs personally.
- Owners who work from home, use a personal phone for business, or drive a personal vehicle for work.
When it doesn’t fit
- Sole proprietors and single-member LLCs taxed as sole proprietors. You already deduct these costs directly on your return.
- Partners in a partnership, who follow different reimbursement rules set by the partnership agreement.
- Owners unwilling to keep logs and receipts.
The rules
- Business connection. Only expenses you incur while doing work for the company qualify.
- Substantiation. You must document each expense, its amount, date, and business purpose, within a reasonable time. The IRS treats 60 days as reasonable.
- Return any excess. Advances or reimbursements above what you can document must be returned within a reasonable time; the IRS treats 120 days as reasonable.
- Why it matters. Business expenses that employees pay personally aren’t deductible on their own federal return. Recent federal law made that rule permanent, so the accountable plan is the way owner-employees recover these costs.
Risks to weigh
- No written plan. Reimbursements without a plan that meets the rules are treated as taxable wages.
- Round-number reimbursements. A flat monthly “allowance” with no support doesn’t qualify.
- Double-dipping. A cost reimbursed by the business can’t also be deducted somewhere else.
How we handle it for clients
With a Cannon & Brown tax plan, we give you a written accountable plan, calculate your home office share, set up a simple expense report you submit each quarter, and make sure each reimbursement is recorded correctly behind the scenes. Because our technology keeps your numbers current all year, we can test this strategy against your real numbers and adjust it as your business changes.
Illustrative example. The business owner and figures on this page are hypothetical, used to explain how the strategy works. They are not a client and not a promise of results. The example assumes an S corp owner-employee, $6,000 of documented business expenses, a 24% federal bracket, a 4.5% Oklahoma rate, and no Oklahoma PTE election. This page is educational and is not tax advice for your situation; tax rules and limits change.
Brooks leads Cannon & Brown Tax Advisors, a forward-thinking tax firm serving business owners in Oklahoma and beyond. He builds year-round tax strategies that help business owners keep more of what they earn and reach their goals. More about Brooks
Common questions about the accountable plan
Can a single-member LLC use an accountable plan?
A single-member LLC taxed as a sole proprietorship doesn't need one, because you already deduct these costs directly on your return. The accountable plan is for S corp and C corp owner-employees.
Why can't I just deduct my home office and phone on my own return as an S corp owner?
As an S corp owner who works in the business, you're an employee, and business expenses employees pay personally aren't deductible on their own federal return. Recent federal law made that rule permanent, so the accountable plan is the way to recover these costs.
Can my S corp pay me a flat monthly allowance for my phone and car?
Not under an accountable plan. A flat monthly allowance with no support doesn't qualify; each expense needs its amount, date, and business purpose documented, or the payments are treated as taxable wages.
Is it better to reimburse expenses or just pay myself more salary?
Reimbursing is usually better. Salary is taxable to you and carries payroll tax, while a reimbursement under an accountable plan is neither.
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