S Corp Owners: The Accountable Plan You're Probably Missing

The common advice is some version of: "Just pay yourself back from the business account whenever you spend your own money."

The problem is that without a proper plan, money the company hands you is either wages (subject to payroll tax and withholding) or a distribution (not deductible to the company). Neither gets you what you wanted, which is a deduction for the company and tax-free cash for you. And as an employee you can't fall back on deducting those costs on your personal return. Unreimbursed employee business expenses are disallowed under IRC §67(g), and that disallowance is now permanent.

IRC §62(a)(2)(A) and §62(c) treat reimbursements under an "accountable plan" as excluded from the employee's income. The rules are in Treas. Reg. §1.62-2, and a plan has to meet three requirements:

1. Business connection (§1.62-2(d)). The expense has to be one you paid or incurred while performing services as an employee, and it has to be deductible under the normal rules, meaning ordinary and necessary under IRC §162(a).
2. Substantiation (§1.62-2(e)). You have to give the company enough information to identify the amount, date, place, and business purpose within a reasonable time. For travel, meals, gifts, and vehicle use, that means meeting the IRC §274(d) standards.
3. Returning amounts in excess (§1.62-2(f)). If you got an advance or allowance larger than what you substantiated, you have to pay back the excess within a reasonable time.

The regulations give a safe harbor for "reasonable time" in §1.62-2(g)(2): an advance within 30 days of the expense, substantiation within 60 days, and return of excess within 120 days. There's also a periodic-statement option where the employer sends a statement at least quarterly.

If an arrangement fails these rules, §1.62-2(c)(3) treats it as a nonaccountable plan. Everything paid under it becomes taxable wages reported on your W-2.

• The business-use share of your home office (rent or mortgage interest, utilities, insurance, repairs)
• Vehicle use of a personally owned car, usually at the IRS standard mileage rate. For 2026 that's 72.5 cents per mile through June 30 and 76 cents from July 1 on, per Notice 2026-10 and Announcement 2026-11.
• The business portion of your cell phone and internet
• Travel, meals, and supplies you paid for personally

1. Put the plan in writing. A short corporate resolution or policy adopting an accountable plan under Treas. Reg. §1.62-2. Keep it in your corporate records.
2. Use an expense report. Monthly or quarterly: date, amount, business purpose, and receipts or other substantiation for each item.
3. Calculate the home office and vehicle pieces properly. Keep the square-footage calculation and a contemporaneous mileage log. The report should show how you got each number.
4. Reimburse from the business account on a set schedule. Stick to the 60/120-day safe harbor.
5. Book it correctly. The company records the reimbursements as the underlying expense (auto, office, travel), not as wages or distributions.
6. Don't also deduct it personally. Reimbursed means you're done. No second deduction on your 1040.
7. Review it every year. When your home, car, or phone situation changes, update the numbers.

An accountable plan lets your corporation deduct legitimate costs you pay personally while keeping the reimbursement out of your taxable income. But it only works if there's a real plan with real paperwork behind it. "I'll pay myself back when I get around to it" is how reimbursements get reclassified as wages or disallowed.

This article is general information, not tax or legal advice. Tax rules change and every situation is different, so talk with a qualified professional before acting on anything here.

• IRC §62 (adjusted gross income; reimbursement arrangements): https://www.law.cornell.edu/uscode/text/26/62
• Treas. Reg. §1.62-2 (accountable plan requirements): https://www.law.cornell.edu/cfr/text/26/1.62-2
• IRC §162(a) (ordinary and necessary business expenses): https://www.law.cornell.edu/uscode/text/26/162
• IRC §274(d) (substantiation requirements): https://www.law.cornell.edu/uscode/text/26/274
• IRC §67(g): https://www.law.cornell.edu/uscode/text/26/67
• IRS Publication 463, Travel, Gift, and Car Expenses (reimbursements chapter): https://www.irs.gov/publications/p463
• IRS Notice 2026-10 (2026 standard mileage rates): https://www.irs.gov/pub/irs-drop/n-26-10.pdf
• IRS Announcement 2026-11 (revised rate effective July 1, 2026), in IRB 2026-29: https://www.irs.gov/irb/2026-29_irb