What is an Accountable Plan?

How much?

The name may suggest some routine that should be sloughed off on the company accountant, but it is actually a fundamental expense payment tool for corporations. Every S-corporation should have an Accountable Plan.

It is unimaginable that any functioning corporation does not have a need for one. Imagine a situation where a Director, an Officer, an employee or a shareholder, while conducting business an behalf of the company, paid a corporate expense from his/her own pocket. That expense is a cost of doing business; the payer is out the money, but cannot take a deduction for it. Since the business did not incur the expense, it cannot take the deduction either. That is where the accountable plan comes to the rescue. Every company needs one.

When an Accountable Plan is approved and enacted by the board of directors (via the resolution/vote process), deductible business expenses paid employees of the company can be passed onto the business where they belong. By enacting such a plan, everyone is on notice about how to get reimbursed.

When purchasing in a manner consistent with the plan, the employee submits a request for repayment. The company actor, usually the treasurer , reviews the reported expense for validity and checks the documentation (receipts, etc.). If accepted, the treasurer authorizes repayment. A corporate check then issues to repay the employee.

Net results:  The employ is made whole; the company now has the deduction for taxes to use against income.

If you do not have an an Accountable Plan, get one. If you do not understand how that works, why you need one or have other concerns, contact JACS.