Accountable Plan Advanced Playbook: S-Corp Owners, Home Office & Per Diem

Bottom Line Up Front (BLUF)

An accountable reimbursement plan is not just a policy for large corporations; it is a critical financial mechanism for small businesses. For S-Corp owners, it is the only compliant way to be reimbursed tax-free for business expenses paid with personal funds. For companies with remote workers, it is the only way to provide a home office stipend without it becoming taxable wages. Misusing this system has a direct and negative tax consequence. This guide details the precise operational workflows for these advanced use cases.

The Accountable Plan: A Financial System

Before diving into specific scenarios, understand the plan as a system with required inputs and a defined output.

Inputs: For any reimbursement to be tax-free, it must satisfy three non-negotiable IRS rules:
1. Business Connection: The expense must have a clear business purpose.
2. Substantiation: The employee (or owner) must prove the expense (amount, time, place, purpose) with receipts and an expense report within a reasonable time (typically 60 days).
3. Return of Excess: Any advance or reimbursement in excess of the substantiated expense must be returned to the company within a reasonable time (typically 120 days).
Successful Output: If all three inputs are present, the reimbursement is tax-free to the recipient and a deductible business expense for the company.
Failure State: If even one of these rules is not met, the entire plan becomes a nonaccountable plan, and all reimbursements are considered taxable wages subject to FICA, FUTA, and income tax withholding.

Workflow 1: The S-Corp Owner Reimbursement

S-Corporation owners who pay for business expenses with personal funds cannot simply take an "owner's draw" or extra salary to pay themselves back. This co-mingles funds and creates significant bookkeeping and tax basis issues. The accountable plan is the required mechanism.

The Step-by-Step Mechanism

This workflow moves a business expense from the owner's personal credit card to the company's books correctly.

Owner Pays for a Business Expense: The owner uses a personal credit card or bank account to pay for a legitimate business expense.
Example: Paying for a $150 software subscription on a personal Amex card.
Owner Substantiates the Expense: The owner must act like any other employee. They complete a formal expense report, attaching the itemized receipt for the software subscription and noting its business purpose.
Company Reimburses the Owner: The S-Corp issues a distinct payment—via check, ACH, or payroll system—to the owner for the exact substantiated amount of $150. This is not part of their regular salary.
Bookkeeper Records the Transaction: This is the most critical step and the most common point of failure.
Correct Entry: The transaction is coded to the specific expense category.
```
Debit: Software Expense ($150)
Credit: Cash ($150)
```
The description should note this was a reimbursement to the owner.
Incorrect Entry: The reimbursement is coded as a "Shareholder Distribution" or "Owner's Draw." This incorrectly reduces the owner's equity basis in the company and fails to capture the legitimate business expense on the Profit & Loss statement.

Critical Warning for S-Corp Owners

The IRS requires a clear separation between business expenses and shareholder distributions. Failing to use a formal accountable plan can be interpreted as co-mingling funds, putting your corporate veil at risk during an audit. Never reimburse yourself through an owner's draw.

Workflow 2: The Compliant Home Office Stipend

Since the Tax Cuts and Jobs Act (TCJA) eliminated the miscellaneous itemized deduction for unreimbursed employee expenses, the accountable plan is the only way for an employee to receive tax-free funds for their home office. A flat, unsubstantiated monthly "stipend" is taxable income.

The Step-by-Step Mechanism

This workflow converts a taxable allowance into a tax-free reimbursement.

Establish the Expense Basis (The Calculation): The employee must calculate the actual, pro-rated cost of their home office for a given period (e.g., one month). This involves two types of expenses:
- Direct Expenses: Costs that are 100% for the office (e.g., a dedicated business internet line, office supplies). These are easy to track.
- Indirect Expenses: Costs for the entire home that must be pro-rated (e.g., rent, utilities, insurance). This is the complex part.
Perform the Indirect Expense Calculation:
- Find the Business Use Percentage. This is based on the exclusive and regular use of a space.
```
(Square Footage of Office) / (Total Square Footage of Home) = Business Use %
```
  (150 sq. ft. office) / (1,500 sq. ft. apartment) = 10%
- Sum Total Indirect Home Costs for the Month.
  - Rent: $2,500
  - Electricity: $150
  - Internet: $100
  - Renter's Insurance: $50
  - Total Monthly Costs: $2,800
- Calculate the Reimbursable Amount.
```
(Total Indirect Costs) * (Business Use %) = Reimbursable Portion
```
  $2,800 * 10% = $280
Employee Substantiates the Claim: The employee submits an expense report showing this calculation, along with copies of the underlying bills (rent statement, utility bill, etc.) as proof of the costs.
Company Reimburses the Employee: The company issues a payment for the substantiated amount ($280 in our example). This amount is tax-free to the employee and deductible for the business.

Bridge to The Solution

Calculating this manually every month is tedious, requires gathering multiple documents, and is prone to error. A single miscalculation can invalidate the reimbursement. The process itself creates the need for a tool to ensure accuracy and compliance.

To see how these numbers apply to your remote employees and to generate compliant documentation, use our Home Office Reimbursement Calculator.

The "Stipend" vs. "Reimbursement" Trap

Do not confuse these terms. A $100/month flat "stipend" paid to an employee for home office use without substantiation is a nonaccountable plan. The company must report that $1,200/year as taxable wages on the employee's W-2.

Workflow 3: Simplified Substantiation with Per Diem & Mileage

Tracking every single receipt for meals on a business trip or every gallon of gas is an administrative headache. The IRS allows businesses to use standard rates as a form of simplified substantiation under an accountable plan.

The Per Diem & Mileage Mechanism

This system replaces actual receipts with a standard rate, but still requires substantiation of the business activity itself.

For Business Mileage:

Inputs Required: The employee does not need gas receipts. Instead, they must maintain a contemporaneous mileage log showing:
- Date of travel
- Starting and ending locations
- Business purpose of the trip
- Total miles driven

Calculation:

(Total Business Miles) * (Current IRS Standard Mileage Rate) = Tax-Free Reimbursement

For Travel Per Diem (Meals & Incidental Expenses):

Inputs Required: The employee does not need meal receipts. They must submit a report showing:
- Date(s) of travel
- Travel destination (city, state)
- Business purpose of the trip
Calculation:
```
(Number of Travel Days) * (Applicable GSA Per Diem Rate for that location) = Tax-Free Reimbursement
```
Note: The General Services Administration (GSA) sets these rates, and they vary significantly by city and state. You must use the correct rate for the location of travel.

Critical Per Diem & Mileage Rules

The standard mileage rate is for the use of a personal vehicle only. You cannot reimburse an employee using this rate if they are driving a company-owned vehicle.
You must use the specific Per Diem rate for the city of travel. A flat, company-wide "travel allowance" that doesn't follow the GSA rates is a nonaccountable plan.

Actionable Takeaways & Next Steps

An accountable plan is a powerful but precise financial machine. Using it correctly saves on taxes and ensures compliance; using it incorrectly creates taxable events.

S-Corp Owners: Audit your books immediately. If you see reimbursements coded as "Owner's Draw," stop. Implement a formal expense reporting process for yourself, starting today.
Companies with Remote Workers: Review your "stipend" or "allowance" programs. If you pay a flat, unsubstantiated amount, you are paying taxable wages. Work with us to convert it into a compliant accountable reimbursement plan.
All Businesses: A formal, written accountable plan policy is your best defense in an audit. If you don't have one, it's time to create one.
Calculate Your Numbers: Before implementing a home office reimbursement plan, model the financial impact. Use our Home Office Reimbursement Calculator to determine a compliant, tax-free amount for your employees.