Accountable Plan
Definition
An Accountable Plan is a formal IRS-approved reimbursement arrangement used by S-Corporations and C-Corporations. It allows the company to reimburse its employees (including owner-employees) for out-of-pocket business expenses—like home office use, internet bills, and vehicle mileage—completely tax-free.
Why it matters
If you own a standard LLC (disregarded entity), you can simply deduct home office expenses directly on your Schedule C. However, if you elect S-Corp status, you become an employee. Employees cannot legally deduct home office expenses on their personal tax returns. To get the deduction, the S-Corp must adopt an Accountable Plan. Under this plan, the employee submits an expense report to the company, and the company reimburses them. The reimbursement is tax-free to the employee, and the company gets to write off the expense.
Example
Kevin owns an S-Corp and works from his home office. He calculates that 10% of his home is used exclusively for business. His total rent and utilities for the year equal $30,000. Under his S-Corp's Accountable Plan, Kevin submits an expense report for $3,000 (10% of $30,000). His S-Corp writes him a $3,000 check. Kevin pays no taxes on that $3,000, and the S-Corp deducts $3,000 as a business expense.