Accountable Plan.
In plain English
An accountable plan is a reimbursement arrangement that meets IRS rules so the money a business pays back to a worker for business expenses is not treated as taxable income. To qualify, three things must be true: the expense had a business purpose, the worker substantiated it with records like receipts, and any advance not actually spent is returned to the business within a reasonable time. If a plan fails any of these, the reimbursements become taxable wages. Owners of S corporations often use accountable plans to get reimbursed for things like a home office or mileage.
01Why it matters
Done right, it moves money out of the business and into your pocket with no payroll tax and no income tax on it, which is one of the cleaner ways for an S corp owner to recover personal costs spent on the business.
02The math, step by step
Your S corp reimburses you $1,200 for a home office under an accountable plan. You submit a calculation and records, so the $1,200 is a deductible expense for the business and tax-free to you. Without an accountable plan, that same $1,200 could be treated as taxable wages.
03What this is NOT
Reimbursements under an accountable plan are not income. They are repayment for money you already spent on the business, so they are not taxed. A paycheck or bonus is compensation and is fully taxable.
04Receipts
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Plain-English answers from our glossary. Receipts included. Never advice.
Educational tool. Answers come only from ClearMoneySchool's published glossary and are not advice. Why we never give advice