An accountable plan allows S Corp owners to reimburse themselves from the business for business-use or mixed-use purchases made using personal funds. It is common to reimburse home office expenses through an accountable plan. These reimbursements become a deductible business expense, lowering your tax liability.
An accountable allowance is any allowance that meets the IRS's guidelines for business expenses in publication 463. Under an accountable plan, employees must provide substantiation of their business mileage or car expenses through either detailed mileage logs or expense reports.
The vehicle is registered under your name and you pay all expenses such as gas, repairs, and insurance from your personal account. The S Corp is claiming the reimbursement as a vehicle deduction, which reduces the taxable profit of the business.
The difference between an accountable and a non-accountable plan is tax. Accountable plans meet the IRS' requirements for business expense reimbursements to be excluded from an employee's gross income. Non-accountable plans don't. Any reimbursement made in this plan counts as income and is subject to tax.
The requirements of the accountable plan rules are found in Treasury Regulation 1.62-2; and they require that the payee (1) establish the business purpose and connection of the expenses; (2) substantiate the expenses claimed to the payer within a reasonable period of time; and (3) return any amounts to the payer which ...
For example, if an employee is taking a business trip, the employer can opt one of two ways to reimburse the employee under an accountable plan. One way would be to provide the employee with an allowance amount ( i.e., a dollar amount per day that will be fully reimbursed by the employer ) prior to the trip.
If you use your car only for business purposes, you may deduct its entire cost of ownership and operation (subject to limits discussed later). However, if you use the car for both business and personal purposes, you may deduct only the cost of its business use.
If the business is the owner, then the business must be on the title. This might be a challenge with car loans and leases, but for the business to claim it as an asset and subsequent expenses the title needs to be in the LLC or S Corp's name.
What Does “Personal Use of Company Vehicle” Mean? Personal use of a company vehicle for non-work-related purposes is a taxable perk known as a de minimis fringe benefit. Examples of driving a company vehicle for personal use include: Your employee's commute between home and work, if it is on a regular basis.
The typical reimbursed expenses through an Accountable Plan are home office use including depreciation, mileage or business-use portion of automobile expenses, cell phone and internet.
Standard mileage rate
One way to ensure you have a non-taxable car allowance is to verify your employees' mileage for a certain period of time and then reimburse them. This allowance will not be taxable as long as it is not above the IRS standard mileage rate for business travel, which is 70 cents per mile for 2025.
Accountable plans require tracking of business mileage to prove that the allowance has been used for business purposes. All substantiated portions of the car allowance are excluded from an employee's taxable income. Accountable expenditures are deductible as a business expense for an employer.
Like LLCs, eligible S corps can take the QBI deduction (Section 199A), which can amount to as much as 20% of a business's total taxable income and can be taken in addition to standard and itemized deductions.
The S corporation can pay you rent for the home office. The S corporation can pay you for the costs of a home office under an “accountable” plan for employee business expense reimbursement. Accountable Plan for S-Corporation Deductions and Reimbursements.
Corporations, S-Corps, and Partnerships may only claim actual expenses for vehicles. Thus, your S-Corp may claim depreciation, fuel expenses, oil expenses, repairs, insurance, and so forth.
Wondering what the benefits are of buying a car under an LLC? For business owners, it's a great way to reduce your personal liability and safeguard your privacy. Plus, you may be able to deduct most vehicle maintenance costs when filing your business income taxes.
Limitations on Vehicles
If a car is first used for personal purposes and then changed to business use in a subsequent year, section 179 cannot be used upon transfer to business use, however the vehicle will still be depreciated and it may still be eligible for bonus depreciation.
If you bank a lot of mileage for work, the standard method might result in bigger tax savings. If you drive a fairly average amount for work, however, you might save more using actual expenses.
For the 2024 tax year, the amounts are: $12,400 for light vehicles under 6,000 pounds (plus up to $8,000 in bonus appreciation) $30,500 maximum tax write-off for vehicles over 6,000 lbs.
An accountable plan is used by S Corp owners to reimburse themselves for purchases and personal items that are also used by the business (aka mixed-use purchases). Home office and auto expenses are the most common expenses reimbursed through an accountable plan.
If you use your own car for work purposes and are reimbursed by your employer for the related expenses, the mileage reimbursement generally isn't taxable income if it's paid under an accountable plan. However, if it's paid under a nonaccountable plan, the reimbursement is generally taxed.
The difference between an accountable and a non-accountable plan is how the payments are treated for tax purposes. They are either included as part of the employee's gross income or excluded. For accountable plans, the reimbursement or excess amount is excluded from income and is not subject to withholding taxes.