Streamline Your Business Expenses: Accountable Plans

Having a well-defined accountability plan for reimbursable business expenses is crucial. Without it, the IRS might consider all reimbursements to employees as taxable income—leading to significant financial consequences.

What is an Accountability Plan?

An accountability plan is a policy that businesses use to reimburse employees for work-related expenses. Under IRS rules, if certain conditions are met, these reimbursements are not considered taxable income. This ensures employees are fairly compensated while allowing businesses to deduct these expenses.

What's the Big Deal?

Before the Tax Cuts and Jobs Act (TCJA), employees could claim expenses on Form 2016 and offset taxable income with deductions. Post-TCJA, that workaround was disallowed—making an accountability plan essential for:

• Tax-Free Reimbursements: Employees aren’t taxed on properly reimbursed expenses.
• Deductible Expenses: Businesses can deduct these costs without complications.
• Financial Protection: Avoid costly IRS adjustments and penalties.

Requirements of an Accountable Plan

To qualify under IRS rules, an accountable plan must meet three requirements:

1. Business Connection:
   Expenses must be incurred while performing employee duties.

2. Substantiation:
   Employees must provide receipts, logs, or other documentation within a reasonable period.

3. Return of Excess:
   Any excess reimbursement beyond substantiated expenses must be returned within a set timeframe.

Types of Expenses That Qualify

• Home Office: Costs related to maintaining a home workspace.
• Travel and Meals: Expenses incurred during business travel.
• Auto Expenses: Costs for using a personal vehicle for business.
• Supplies and Tools: Essential items for work tasks.
• Phone and Internet: Communication costs.
• Dues, Subscriptions, & Licensing: Professional fees necessary for the job.

Examples of Templates and SOPs

Expense Report Template & SOPs for Reimbursable Expenses

1. Submission of Expense Reports:

   • Employees must submit reports by the 15th of the following month.
   • Reports should include receipts and necessary documentation.

2. Approval Process:

   • Managers review and approve reports within five business days.
   • Approved reports are forwarded to the accounting department.

3. Reimbursement Timeline:

   • Processed bi-weekly via direct deposit.

4. Handling Excess Reimbursements:

   • Excess funds must be returned within 30 days.
   • Employees should notify the accounting department immediately.

5. Record Keeping:

   • Retain all expense reports and supporting documents for a minimum of three years.
   • The accounting department manages these records.

Conclusion

A well-defined accountability plan is vital to ensure employees are reimbursed properly and businesses can deduct these expenses without tax issues. Implementing customized templates and SOPs streamlines the process, ensuring consistency and compliance across the board.

Setting Up Accountable Plans

With just $500, we can help you:

• Develop customized expense report templates.
• Create detailed SOPs for expense management.
• Ensure compliance with IRS requirements.
• Train your team on maintaining these plans.

Contact us today to streamline your expense management and ensure tax compliance!