Why Every Small Business Owner Should Be Using an Accountable Plan (and How to Do It Right)
- Stephanie Peterson
- Jan 22
- 3 min read
If you’re a small business owner paying for business expenses out of pocket, there’s a good chance you’re leaving money on the table; or worse, creating unnecessary tax exposure.
An Accountable Plan is one of the most overlooked yet powerful tax strategies available to small business owners, especially LLCs and S-corporations. When implemented correctly, an Accountable Plan allows you to reimburse business expenses tax-free, reduce taxable income, and stay compliant with IRS rules.
At Superior Virtual Bookkeeping LLC, I work one-on-one with business owners every day who have never been told about Accountable Plans; or who were told about them but never shown how to implement them correctly.
Let’s break down why Accountable Plans matter, how they work, and how you can set one up the right way.
What Is an Accountable Plan?
An Accountable Plan is a formal expense reimbursement arrangement that allows a business to reimburse owners or employees for ordinary and necessary business expenses without those reimbursements being treated as taxable income.
Under rules established by the Internal Revenue Service, reimbursements made under a properly structured Accountable Plan are not subject to income tax or payroll tax - as long as strict requirements are followed.
Why Accountable Plans Are So Important for Small Businesses
Many business owners pay for expenses like mileage, home office costs, cell phones, internet, meals, and supplies out of their personal bank account and never reimburse themselves properly.
Without an Accountable Plan:
Those expenses may not be reimbursed at all
Or reimbursements may be treated as taxable wages
Or deductions may be disallowed due to poor documentation
With an Accountable Plan:
Business expenses are reimbursed tax-free
Payroll and income taxes can be reduced
Records are cleaner and easier to support
You stay compliant and audit-ready
This strategy is especially valuable for S-corporation owners, where unreimbursed expenses can no longer be deducted personally.
IRS Requirements for an Accountable Plan
To qualify as an Accountable Plan, the IRS requires three key elements:
1. Business Connection
Expenses must be ordinary and necessary and incurred for a legitimate business purpose.
2. Substantiation
Expenses must be documented with:
Date
Amount
Vendor or location
Business purpose
Business relationship (if applicable)
Receipts must generally be submitted within 60 days and returning excess reimbursements within 120 days.
3. Return of Excess Amounts
Any advance or reimbursement that is not properly substantiated must be returned within a reasonable timeframe.
If these rules are not followed, reimbursements can be reclassified as taxable income.
The Biggest Mistake Business Owners Make
The most common mistake I see is business owners thinking that simply “tracking expenses” or “paying themselves back” counts as an Accountable Plan. It does not.
An Accountable Plan must be:
Adopted in writing
Properly documented
Consistently followed
Supported with accurate records
Without these steps, the plan can fail - even if the expenses themselves are legitimate.
How Superior Virtual Bookkeeping LLC Helps
Because I run Superior Virtual Bookkeeping LLC myself, I understand how important it is to have practical, affordable tools that actually work for small businesses — not generic legal documents that leave you guessing.
That’s why I created my Accountable Plan Bundle, designed specifically for business owners who want to implement this strategy correctly without paying thousands in legal fees.
What’s Included in the Accountable Plan Bundle
✔ Accountable Plan Agreement Template & Implementation Guide (Word Documents) A fill-in-the-blank, IRS-compliant agreement that allows your business to formally adopt an Accountable Plan.
✔ Quarterly Accountable Plan Reimbursement Tracker (Excel)An easy-to-use Excel chart that helps you track reimbursable expenses by quarter, calculate totals, and maintain clean records.
Together, these tools help ensure your Accountable Plan is not only adopted — but actually used correctly.
Who Should Be Using an Accountable Plan?
Small business owners
LLCs and S-corporations
Business owners paying expenses out of pocket
Anyone looking to legally reduce taxable income
If you’re already paying for business expenses personally, an Accountable Plan is often one of the simplest tax-saving strategies available.
Final Thoughts
An Accountable Plan isn’t about cutting corners; it’s about doing things the right way.
When implemented properly, it can:
Reduce taxes
Improve recordkeeping
Simplify reimbursements
Protect you in the event of an audit
If you’re ready to stop guessing and start using this strategy correctly, my Accountable Plan Bundle gives you the tools to get started with confidence.
If you’d like help setting it up or want to know whether an Accountable Plan makes sense for your business, I’m always happy to help.
Superior Virtual Bookkeeping LLC - Professional bookkeeping and accounting services for small businesses.
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