What method should you choose?

Attracting and keeping good employees is a goal in any business. One way to make life easier for your employees is to have an easy to use reimbursement plan. Travel, transportation, moving, and educational expenses are common reimbursable expenses. As the employer, you have the option to set up an accountable or nonaccountable reimbursement plan. Under either plan, you can deduct many of the business expenses paid to or for employees. However, the plan you choose can make a big difference to your employees.

Qualified items that are reported under an accountable plan are not included in the employee's wages. Under this plan, you issue a check to the employee, who accounts to you for the expenses and returns the excess advance, if any. You take the deduction for the business expense, but the expense never shows up on the employee's W-2. For a meal expense, the employee must provide you with the time, place, and business purpose. You are allowed to give and deduct the meal per diem amount given to the employee. If the meal per diem is within the federal guidelines, no income is reported on the employee's W-2, even is he or she doesn't spend the entire amount. Keep in mind that you and your relatives are not allowed to use the per diem method.

Under a nonaccountable plan, you grant a certain amount of money to the employee to cover business expenses. The employee's W-2 income includes the expense money. You deduct the expense money as wages paid to the employee. The employee can deduct the allowable business expenses on his or her personal return, subject to a limit. Tax wise, the accountable plan is generally easier and more advantageous for the employee.

Tax Tips Small Business

  • Starting Your Own Business?

    Here are a few quick tips to help you reduce taxes

    Open a separate business checking account. Many small business owners don't realize the complications that can arise from using their personal checking account to pay for business expenses. If business expenses are mixed in with personal expenses, the IRS may disallow them.

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Small Business Quick Tip

  • Personal Assets to a Business

    If you have contributed personal assets, such as a computer or vehicle to your business, the lower of the fair market value or your cost basis of these assets qualifies as a business deduction, subject to depreciation limitations, beginning with the date of conversion.
Tuesday, 16th October 2018

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Tax Tips Personal

  • IRA Contributions for Military Personnel

    Nontaxable combat pay is considered compensation

    Members of the military serving in Iraq, Afghanistan, and other combat zone localities can now put money into an IRA, even if they received tax-free combat pay. Under the Heroes Earned Retirement Opportunities (HERO) Act,

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Personal Quick Tip

  • Medical and Charitable Mileage

    Do you use your auto for charitable purposes? What about going to and from the doctor or dentist? Your mileage for both medical and charitable purposes may be deductible on your tax return. It is important to set up a mileage log and keep it handy so you can track your deductible mileage throuhghout the year.