Are you a business owner who’s looking to maximize your tax savings?
Accountable plans are a means for employers to reimburse their employees for business expenses, adding up to significant benefits come tax time.
Accountable plans allow reimbursement for any number of expenses paid out by employees, including:
- Travel expenses for employees, including meals
- Equipment and tools purchases
- Home office expenses for employees
- Uniforms or accessories required for the job
- Related subscriptions, dues, and memberships
- Telephone or cell phone expenses
Businesses set up an accountable plan to reimburse employees for these expenses based on specific limits are not taxable for their employees. When an employer doesn’t have an accountable plan established, any reimbursements would be taxable to employees.
An accountable plan also allows you to correctly document all reimbursements while following IRS guidelines, avoiding bigger issues if you’re ever audited.
There’s another benefit to employers who set up an accountable plan: it’s a must-have for employees who need to return excess reimbursements to their employers, as sometimes those are paid out above and beyond allowable balances. Of course, your employees would never try to over-charge or inflate expenses for a bigger reimbursement, but accountable plans effectively limit any errors (in their favor) since all receipts must be documented.
Additionally, when an employer has an accountable plan in place, travel expenses for employees don’t need to be earmarked as taxable income.
The tax laws for accountable plans shifted with the 2017 Tax Cuts and Jobs Act (TCJA), which is in place for tax years 2018 through 2025. These changes include a host of tax procedures regarding employees, among others.
To be deemed an accountable plan in the IRS’ eyes, you need to meet these requirements:
- Expenses must be connected to the business, such as they were paid out or incurred while the employee was on-the-clock or performing job duties.
- The employee must present these expenses to the employer within a reasonable time, as well as including details such as the date, time, exact amount, location, and purpose for the expenses.
- Excess reimbursements must be returned by the employee within a predetermined time that’s deemed reasonable.
There are other requirements and restrictions when it comes to accountable plans, but they offer some key taxation benefits to both employees and their employers.
Please make an appointment with my office using this link to get your accountable plan set up today. This call could save you thousands in taxes.
–Jose A. Ramirez