• Skip to content
  • Skip to primary sidebar

Header Right

  • Home
  • About
  • Contact

Archives for May 2019

Know the Tax Regulations for Reimbursing Employee Business Expenses

May 21, 2019 by admin

Manjula P. Modi, CPA PLLC Accounting and Tax ServicesAny employer reimbursing its employees for business-related expenses should consider whether the reimbursement arrangement meets the IRS’s requirements for an accountable plan. Having an accountable plan that meets tax law requirements can provide tax advantages.

Business Connection

Each expense reimbursed under an accountable plan must have a business connection. This means that the expense must be allowable as a deduction and paid or incurred by the employee while performing services as an employee.

Other Requirements

Employees must adequately account for their expenses and return any excess reimbursements or allowances within a reasonable period of time. The meaning of reasonable period of time depends on the facts and circumstances, but the IRS has provided several safe harbors.

Substantiation of an expense within 60 days after it is paid or incurred will be deemed reasonable, as will the return of an advance within 120 days. Alternatively, an employer may provide its employees with periodic statements (at least quarterly) that require them to either account for or return any advances within 120 days of the statement.

Tax Effects

Expense reimbursements made under an accountable plan that meets the requirements are not included in an employee’s wages and are not subject to federal income or employment taxes. This can be a tax saver for both the employer and the employee.

If no accountable plan is in place, amounts paid to the employee count as taxable wages. The employee can potentially deduct the expenses, but only if the employee itemizes deductions rather than claims the standard deduction. The employee’s deduction for employee business expenses and other miscellaneous expenses is limited to the amount that exceeds 2% of adjusted gross income.

We offer a variety of tax planning services to both businesses and individuals. Conscientious tax planning throughout the year can save you money and make tax time easier. Call Manjula P. Modi, CPA PLLC at 817-741-2383 and request a free initial consultation to learn more.

Filed Under: Business Tax Tips

Primary Sidebar

Search

Archives

  • March 2021
  • February 2021
  • January 2021
  • December 2020
  • November 2020
  • October 2020
  • August 2020
  • July 2020
  • June 2020
  • May 2020
  • April 2020
  • March 2020
  • February 2020
  • January 2020
  • December 2019
  • November 2019
  • October 2019
  • September 2019
  • August 2019
  • July 2019
  • June 2019
  • May 2019
  • April 2019
  • March 2019
  • February 2019

Categories

  • Best Business Practices
  • Business Tax Tips
  • Individual Tax Tips
  • QuickBooks

Copyright © 2019 · https://www.fort-worth-cpa.com/blog