An accountable plan is a written policy that lets your practice pay you back for business costs you paid personally, without that money counting as income to you. It matters most if your practice is an S corp or a C corp.
Why it matters
When your practice is an S corp, you're its employee. Under current federal rules, employees generally can't deduct work expenses they paid themselves on their personal return. If the practice repays you under an accountable plan, the practice deducts the cost and the repayment isn't income to you.
Without a plan, the same repayment can count as wages, with payroll taxes on top.
The three rules
For repayments to stay off your W-2, the plan has to follow three IRS rules:
- Each cost has a business purpose.
- You document each cost within a reasonable time. Within 60 days is the common safe harbor.
- You return any advance you didn't spend within a reasonable time. Within 120 days is the common safe harbor.
What it often covers for DPC owners
- A home office used regularly and only for the practice.
- The business share of your personal cell phone.
- Business miles in your own car, at the IRS standard mileage rate.
- Licenses, CME or dues you paid personally.
- Supplies you bought on a personal card.
Your CPA decides what fits your situation and how to calculate the home office and phone shares.
How it works month to month
Once a month, fill out a short expense report with the receipts and mileage log attached. The practice pays you one reimbursement for the total. Your bookkeeper records each cost in its own category, like supplies, phone or travel.
A flat monthly allowance with no receipts, like $300 a month for your car, doesn't count. Without documentation, it's taxable pay.
If you're a sole proprietor
With a sole proprietorship or a single-member LLC with the default setup, you don't need a plan. Business costs go on your own return directly. Keep receipts anyway, and pay for practice costs with a practice card when you can.
What I'd do this week
- Ask your CPA whether the practice has a written accountable plan. If not, ask them for one.
- Gather receipts for business costs you paid personally this year.
- Submit one expense report and get reimbursed before December 31.
Common questions
Does the plan get filed with the IRS?
No. It's a written policy you keep with the practice's records. Your CPA can draft it or give you a template.
Can the practice reimburse me for my home office?
Often, yes, if the space is used regularly and only for the practice. Your CPA works out the share of rent or mortgage interest, utilities and other costs.
Is a flat phone or car allowance okay?
Not under an accountable plan. Without receipts or a mileage log, an allowance is treated as taxable pay.
Want reimbursements recorded the right way?
We record every reimbursement in its proper category during the monthly close, so your CPA sees the full picture at tax time. If that's what you need, apply to work with us.