As a business owner operating through a corporation, it’s important to remember that your business is a separate legal entity from you. This distinction matters when it comes to reimbursing expenses like travel, meals, lodging, and mileage. If you pay for these costs personally without seeking reimbursement, your corporation loses out on valuable tax deductions—and you can’t deduct them on your individual tax return either, thanks to recent tax law changes. (This applies to entities treated as a C-Corp or S-Corp for tax purposes, including an LLC treated as an S-Corp.)

The good news? There’s a tax-efficient way to handle these expenses: an accountable plan. By properly structuring reimbursements, you ensure that your corporation gets the full deduction while you receive tax-free repayments. In this newsletter, we’ll explain how to implement an accountable plan correctly to stay compliant and maximize tax savings.

Avoiding Costly Mistakes
If you incur expenses related to business travel, meals, lodging, or mileage without seeking reimbursement from your corporation, the corporation does not receive a tax deduction for these costs. Furthermore, you cannot personally deduct these expenses on your individual tax return, as the Tax Cuts and Jobs Act (TCJA) eliminated unreimbursed employee business expenses as an itemized deduction from 2018 through at least 2025.

The Right Way: Accountable Plan Reimbursements
To ensure tax compliance and financial efficiency, you should submit an expense report to your corporation and receive reimbursement under what is known as an “accountable plan.” When structured correctly, an accountable plan provides the following benefits:

You receive tax-free reimbursements for legitimate business expenses.
Your corporation gets the full tax deduction for the expenses reimbursed.
Proper documentation protects you in the event of an IRS audit.

Steps to Implement an Accountable Plan
To maintain compliance and ensure proper reimbursement, follow these best practices:

Maintain detailed records. Keep receipts, mileage logs, and business purpose explanations for all expenses.
Submit expense reports. Provide written reports to your corporation, outlining the details of each expense.
Ensure timely reimbursement. Have your corporation reimburse you within a reasonable time frame.
Avoid overpayments. Return any excess amount if your corporation advances funds for expenses.

Questions
To ensure that you maximize tax benefits and stay compliant, we strongly recommend implementing a formal reimbursement process. If you need assistance with this, be sure to let your tax and accounting team know. If you have any questions, please feel free to reach out to TrueBlaze Advisors.