Here’s a short note on your payments of corporate expenses.
Your Corporation Is a Separate Legal Entity
As a business owner operating through a corporation, you need to remember that the corporation is a distinct legal entity separate from you.
Avoiding Costly Mistakes
If you incur expenses related to business travel, meals, lodging, or mileage without seeking reimbursement from your corporation, the corporation does not receive a tax deduction for these costs. Furthermore, you cannot personally deduct these expenses on your individual tax return, as the Tax Cuts and Jobs Act (TCJA) eliminated unreimbursed employee business expenses as an itemized deduction from 2018 through at least 2025.
The Right Way: Accountable Plan Reimbursements
To ensure tax compliance and financial efficiency, you should submit an expense report to your corporation and receive reimbursement under what is known as an “accountable plan.” When structured correctly, an accountable plan provides the following benefits:
Steps to Implement an Accountable Plan
To maintain compliance and ensure proper reimbursement, follow these best practices:
Take Action Now
To ensure that you maximize tax benefits and stay compliant, I strongly recommend implementing a formal reimbursement process.
If you want my help establishing an accountable plan or structuring your reimbursements correctly, please call me on my direct line at 408-778-9651.