![]() We would make an entry to reflect the reimbursement, and your shareholder distributions would be re-classified as a $15,000 distribution and a $5,000 reimbursement. ![]() But after completing the Accountable Plan Worksheet and Reimbursement form, the company owed you $5,000. For example, let’s say you took out $20,000 over the quarter as distributions. Same thing here.Īnother less elegant way is to re-classify owner or shareholder distributions as employee reimbursements. And if you worked for another business that you did not own, the business would write you a check for the amount of expenses you paid personally. Think of you and your business as separate entities, since they truly are. ![]() The most elegant way, and the way we and the IRS prefer, is that you write a check or a do a transfer from your business checking account to your personal checking account in the amount of the reimbursement. Should you own your automobile as a business asset? We have written some great articles on this topic too! Most automobiles and light duty trucks will operate for much less than the mileage rate, and as such there is some tax arbitrage between your actual costs and the amount deducted on the business tax return as a reimbursement. You can either do this using a mileage rate or a percentage of actual expenses. If you own your automobile personally but use it for your business, then you should reimburse yourself for the business use of the automobile. Straightforward since it is handled similarly to your cell phone. The key here is to be reasonable! You will get way more leniency with a number that appears reasonable. The days of recording each phone call are luckily gone… but you still need to demonstrate why you chose 75% business use over 40% (for example). The business use percentage frankly is a SWAG. This is a challenge if you only have one cell phone the day you get a text from your spouse asking for milk and eggs on the way home from work, your cell phone is suddenly something less than 100%. Many business owners use their cell phone for business, but they also try to deduct 100% of the cell phone expenses as a business expense. Don’t do it! Fire up your phone, move the money to your personal checking account as a distribution, and pay for those movie tickets yourself. Be careful! And… at times the business owner will use whatever checking account has the most money in it. Yes, we all accidentally whip out the business credit card at the grocery store. should be paid by you, the person, and not you, the business owner. The expenses that are 100% personal such as gym memberships, haircuts, Game of Thrones on HBO, etc. We know business owners who have two credit cards, and they are both linked to their United MileagePlus account (as an example) one for business in the business name, and the other for personal. This is bad for a handful of reasons a) it makes record keeping a chore, b) it co-mingles money which the IRS cannot stand and c) it breaks down the arms-length perspective between you and your business which plaintiffs love when suing you. Sure, we leave room for the business owners who want to rack up miles on their personal credit card. ![]() The expenses that are 100% business such as copy paper, business meals, advertising, etc. When discussing Accountable Plan stuff, there are three general expense types. An Accountable Plan is easy to do, is a great way to pull money out of the business and actually reduces the amount of taxes paid. As such, an Accountable Plan is needed now more than ever. However, the days of deducting these employee business expenses on Form 2106 are gone after the Tax Cuts and Jobs Act of 2017. The deduction truly happened on the business tax return. So, the reimbursement was deducted by the business, later considered taxable income to you but netted to zero once you deducted these same expenses on Form 2106. This problem wasn’t terrible since you could also deduct employee business expenses on Form 2106 which was later a Schedule A itemized deduction. What’s the big deal? The big deal is that the IRS considers any reimbursement to be taxable income unless a proper Accountable Plan is adopted and implemented. We’ll run through some of the common ones in a bit. We encourage businesses to implement an Accountable Plan which allows employee owners to turn in expense reports for the business use of personal assets.
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