What Is an Accountable Plan and How Can You Take Advantage of One?

For business owners and entrepreneurs, maximizing tax efficiency often comes down to leveraging the right tools and strategies. One such tool is an accountable plan—a simple yet powerful method for reimbursing employees (including yourself, if you’re an S-Corp owner) for business expenses in a way that avoids additional taxable income. Whether you’re a developer, real estate service provider, or landlord, implementing an accountable plan can create significant tax savings and streamline your expense management.

What Is an Accountable Plan?

An accountable plan is an IRS-compliant reimbursement plan that allows employers to reimburse employees for legitimate business expenses without those reimbursements being treated as taxable income. To qualify, the plan must meet the following requirements:

1. Business Connection: Expenses must be directly related to the business.

2. Substantiation: Employees must provide receipts or documentation showing the nature and amount of the expense.

3. Return of Excess: Any amounts reimbursed that exceed actual expenses must be returned to the employer.

By adhering to these rules, reimbursed expenses are deductible for the business and tax-free for the employee.

How Does an Accountable Plan Work?

With an accountable plan in place, the business reimburses employees or shareholders for qualifying business expenses such as:

• Travel and lodging

• Meals during business trips

• Home office expenses

• Vehicle use for business purposes

• Equipment or tools

Because these reimbursements are not included in the employee’s taxable wages, the business avoids payroll taxes, and the employee avoids income taxes.

Who Can Benefit from an Accountable Plan?

Accountable plans aren’t just for large corporations—they can be a game-changer for small business owners, particularly in the real estate space. Here’s how different types of clients can take advantage of this strategy:

1. Real Estate Developers

Developers often incur substantial expenses related to project management, site visits, and travel. An accountable plan allows them to reimburse these costs tax-free, reducing taxable income for the business.

Example:

• A developer drives 2,000 miles per year visiting construction sites.

• At the IRS mileage rate of $0.67 per mile in 2024, this equals $1,340 in reimbursable expenses.

• Without an accountable plan, this reimbursement could be taxed as income. With an accountable plan, it’s completely tax-free.

2. Real Estate Service Providers (Realtors, HVAC Company Owners, Interior Designers)

Service providers often have mixed personal and business expenses, such as using their personal vehicles for client meetings or purchasing supplies for client projects. An accountable plan ensures these costs are reimbursed tax-free and properly documented.

Example:

• An interior designer spends $5,000 on furniture and decorations for a client project.

• With an accountable plan, the business can reimburse this expense, and the designer avoids additional income tax on the reimbursement.

Realtors and HVAC owners can similarly benefit by reimbursing vehicle mileage, travel to client sites, and other business-related expenses.

3. Landlords

Landlords who own property through an S-Corp or LLC can use an accountable plan to reimburse themselves for property-related expenses, such as travel to rental properties, maintenance supplies, or even a portion of home office costs if they manage their properties themselves.

Example:

• A landlord visits their rental property multiple times a year for maintenance and tenant check-ins.

• Travel, mileage, and supplies related to these visits can be reimbursed through the accountable plan, reducing personal tax liability and creating a deductible business expense.

How to Set Up an Accountable Plan

1. Draft a Written Plan

Create a formal document outlining the types of expenses eligible for reimbursement, how employees (or yourself) should substantiate these expenses, and the process for returning any excess reimbursements.

2. Track Expenses Accurately

Ensure employees or shareholders submit receipts, mileage logs, or other documentation to substantiate claims. This ensures compliance with IRS rules.

3. Reimburse Promptly

Reimburse employees or shareholders within a reasonable timeframe after the expense is incurred and substantiated.

4. Separate Reimbursements from Wages

Keep reimbursements separate from payroll to ensure they are not included in taxable income.

Benefits of an Accountable Plan

1. Tax Savings

• For employees: Reimbursements are tax-free, which increases take-home pay.

• For employers: Reimbursed amounts are deductible as business expenses, reducing overall taxable income.

2. Simplified Expense Management

An accountable plan provides a clear framework for tracking and reimbursing expenses, making it easier to stay compliant with IRS regulations.

3. Avoid Double Taxation

By using an accountable plan, you avoid the need to report reimbursements as income, eliminating additional payroll and income tax obligations.

Why Gilmer Ferretti?

At Gilmer Ferretti, we understand the unique challenges real estate entrepreneurs face. Whether you’re a developer, service provider, or landlord, we can help you set up and manage an accountable plan tailored to your business needs. Our team ensures compliance with IRS guidelines while helping you maximize tax savings.

Take the Next Step

If you’re ready to optimize your expense management and reduce your tax burden, contact Gilmer Ferretti today. Let us show you how an accountable plan can work for you and keep more of your hard-earned money in your pocket.

By implementing an accountable plan, you’re not just saving on taxes—you’re building a more efficient and profitable business. Let’s make it happen!