The accountable plan, for S corporation owners

Why it matters once you're an S corporation

If you actively run your S corporation, you're generally its shareholder-employee. Most employees can't deduct business costs they pay themselves: that deduction was suspended in 2018, and in 2025 Congress made the suspension permanent. So a phone bill you pay personally for the business comes out of money you've already paid tax on, and nothing gives it back.

An accountable plan fixes that. The corporation reimburses you, the reimbursement isn't wages, and the corporation generally deducts the cost under the usual business-expense rules — which lowers the profit that passes through to your personal return. The usual limits still apply: meals are generally only half deductible, entertainment generally not at all, and equipment may have to be depreciated.

The three rules

A reimbursement arrangement is an accountable plan only if it meets all three:

1. Business connection. It covers costs you pay or incur while working for the corporation — not personal ones.
2. Substantiation. You account to the corporation for each cost — the amount, the date and the business reason, with receipts or other supporting records as the rules require — within a reasonable period.
3. Return of any excess. If the corporation advances more than you spend, you pay the difference back within a reasonable period.

What counts as a reasonable period depends on the facts and circumstances. The regulations give two safe harbors that are always treated as reasonable. Under the first, an advance is paid no more than 30 days before the cost, you substantiate within 60 days after you pay it, and you return any excess within 120 days. Under the second, the corporation sends you a statement at least once a quarter asking you to substantiate or return amounts, and you do it within 120 days of the statement. A corporation can adopt those periods as firm deadlines in its own plan — the simplest way to stay inside them.

What it can cover

• Phone and internet — the business share, worked out the same way every month.
• Your car — business miles from a log kept as you drive, usually reimbursed at the IRS standard mileage rate for the year.
• A home office — the business share of rent or mortgage interest, utilities and insurance, by floor area. The space has to be used regularly and only for work, and it has to qualify in one of three ways: it's your principal place of business, you regularly meet clients or customers there, or it's a separate structure not attached to your home. As an employee, the use also has to be for the corporation's convenience, not just yours. It's the item accountants look at hardest; keep the measurements, the allocation and the reason in writing.
• Other ordinary and necessary business expenses the corporation would otherwise pay — supplies, software, travel — that you paid with a personal card.

How it goes wrong

There are two ways to fail, and they cost different amounts. If the arrangement itself doesn't require a business connection, substantiation and the return of any excess, it's a nonaccountable plan, and everything paid under it is wages: reported on your W-2, with income tax withheld and payroll taxes owed on it. The same is true if a plan that looks right on paper is routinely ignored — a pattern of abuse makes every payment wages.

Under an otherwise sound plan, a single slip costs less: an amount that isn't substantiated in time, or an excess that isn't returned, generally becomes wages on its own, without undoing the reimbursements that were properly documented. The usual ways plans go wrong:

• A flat monthly allowance — "$500 for phone and car" — with no receipts or mileage behind it.
• One lump reimbursement at year-end for costs from last spring, well outside a reasonable period.
• Nothing written down: no expense reports, no mileage log, no measurements for the office.

The regulations don't strictly require a written plan document, but a short one adopted by the corporation is the clearest proof the arrangement existed before the reimbursements did.

The arithmetic

The saving is the reimbursed amount times the tax rate you'd otherwise pay on it. For the fictional business in our sample report— $1,500 of phone and internet, $2,700 of home office, $2,900 of mileage — that's $7,100 reimbursed and about $2,130 a year at a 30% combined rate.

One adjustment people miss: if you receive the full 20% qualified business income deduction, lowering the corporation's profit also lowers that deduction, so the federal part of the saving is about a fifth smaller. The calculator accounts for it. Income thresholds, wage limits and the rules for service businesses can change that, so treat it as an approximation.

When it doesn't fit

• You're a sole proprietor or single-member LLC taxed as one. You deduct these costs directly on Schedule C; there's no employer to reimburse you.
• You're in a partnership. Partners aren't employees, and their reimbursements follow different rules.
• The business already pays everything directly. If the corporation's card pays the phone bill, there's nothing to reimburse.
• You won't keep the records. Reimbursements without them are wages. A plan on paper that isn't followed is worse than none, because it looks like a deduction and isn't.

If you're not sure which side of these lines your business falls on, ask your CPA or tax attorney whether you qualify before setting up a plan.

A setup that holds up

Not every item here is required by the regulation, but together they make the plan easy to defend.

• ○A short written plan, adopted by the corporation before the reimbursements start — strongly recommended, though the regulation doesn't expressly require one
• ○An expense report each month, with receipts or other supporting records, submitted within 60 days
• ○A mileage log kept as you drive, not rebuilt at year-end
• ○For a home office: measurements, the allocation calculation and the business reason — with a floor plan kept on file
• ○Reimbursement paid from the corporation's account, and any advance over costs returned within 120 days

Get the template — the plan document, the resolution that adopts it, a monthly expense report, and a filled-in example.