The Right Way to Ask Your Corporation for Travel Reimbursements

If you’re a small business owner operating as a C or S Corporation, understanding how to handle travel reimbursements the right way is essential. Why? Because doing so not only keeps you compliant with tax laws but also ensures your corporation maximizes deductions while putting more money back into your pocket.

Let’s break it down step by step to help you manage your reimbursements properly.

The Basics of Corporations and Reimbursements

Before we jump into the details, here are some key rules to keep in mind when you work for and operate a corporation:

1. You are an employee of the corporation – Even if you own 100% of it.
2. The corporation is a separate legal entity – It’s distinct from you personally.
3. The corporation incurs business expenses – You are simply incurring them on its behalf.
4. Reimbursements matter – The corporation can only claim deductions for business expenses it reimburses.

Why Reimbursements Matter

Imagine you incur business-related travel expenses (like flights, meals, or lodging) and don’t seek reimbursement from your corporation. The corporation can’t deduct anything because, legally, it hasn’t paid for the expenses.

Now, you might think, “I’ll just deduct them on my personal tax return.” Unfortunately, that’s not possible due to recent tax law changes.

Why You Can’t Deduct Employee Business Expenses

Under the Tax Cuts and Jobs Act (TCJA), the deduction for unreimbursed employee business expenses has been eliminated for tax years 2018 through 2025. This means that costs like travel, meals, and mileage that aren’t reimbursed by your corporation cannot be deducted on Schedule A as itemized deductions.

What about beyond 2025? While nothing is set in stone, many experts predict lawmakers may extend this rule beyond its current end date or make it permanent.

The takeaway? If you want to avoid paying out of pocket for business expenses, you need another strategy. That’s where accountable plans come in.

Your Best Option: Accountable Plans

An accountable plan is a formal arrangement between you (the employee) and your corporation for reimbursing business expenses. It ensures compliance, provides tax advantages, and protects you in the event of an IRS audit.

Here’s why an accountable plan works so well:

• Reimbursements are tax-free for you, the employee.
• The corporation can claim full tax deductions for the reimbursed expenses.
• Thorough documentation keeps both you and your business protected.

How to Create an Accountable Plan

To stay compliant and make the most of your reimbursements, follow these simple steps:

1. Keep Detailed Records

Document all business-related expenses thoroughly. This includes saving receipts, maintaining mileage logs, and noting the purpose of each expense. For example:

• Use a Home Office Reimbursement Form for reimbursing a home office expense
• Use an Employee Vehicle Reimbursement Form to reimburse personal vehicle expenses on an actual cost basis.

2. Submit an Expense Report

Provide a written report to your corporation detailing each expense. Make it as clear and comprehensive as possible to avoid confusion.

3. Get Reimbursed Promptly

The corporation should reimburse you within a reasonable time frame. This helps establish a clear paper trail and keeps things running smoothly.

4. Avoid Overpayments

If you receive an advance reimbursement and it exceeds your actual expenses, be sure to return the excess funds to the corporation. This ensures compliance with IRS rules.

Why Proper Reimbursements Matter

When you respect your corporation’s legal status as a separate entity, you set your business up for success. Properly structuring reimbursements through an accountable plan ensures you’ll:

• Maximize tax benefits for both you and your corporation.
• Avoid potential disputes or penalties during an audit.
• Streamline your finances and operate your business the right way.

It might seem tedious initially, but following these procedures gives you peace of mind and financial confidence.

Need Help Structuring Your Reimbursements?

Navigating the intricacies of reimbursements and tax compliance can be overwhelming, especially when you’re focused on growing your business. That’s why consulting Cobb CPA is a smart move.

Cobb CPA can:

• Help you set up a formal accountable plan tailored to your corporation’s needs.
• Ensure your reimbursements comply with IRS guidelines.
• Provide actionable advice to maximize deductions and boost business success.

Don’t leave money on the table or risk non-compliance. Take charge of your reimbursements today.

Remember, when it comes to managing your corporation, doing things the right way isn’t just about compliance—it’s about building a stronger, more sustainable business for the future.

Take Action Now

If you’re unsure about where to start with accountable plans or travel reimbursements, consult us today. A little expert guidance can go a long way toward protecting your business and keeping more money in your pocket.

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