Discussion:S-Corp Owner/Employee Reimbursements
From TaxAlmanac
| Revision as of 13:16, 1 November 2009 Death&Taxes (Talk | contribs) (The 55 cents a m) ← Previous diff |
Revision as of 14:15, 1 November 2009 Harry Boscoe (Talk | contribs) (We may have fail) Next diff → |
||
| Line 37: | Line 37: | ||
| Read [[Publication 463]] carefully. | Read [[Publication 463]] carefully. | ||
| }} | }} | ||
| + | |||
| + | {{ForumReplyPost|UserID=Harry Boscoe|Date=1 November 2009|Text=We may have failed to emphasize the benefit of "Method 2" - the "accountable plan" - compared to "Method 1". | ||
| + | The results of using an "accountable plan" for reimbursement of employee business expenses are way far superior to what "less sophisticated" approaches get you. | ||
| + | The taxpayer can completely avoid the 2% haircut of his miscellaneous itemized deductions that can cost him a portion - or maybe all - of the income tax benefit of his business expenses. | ||
| + | The taxpayer and his employer can completely avoid payroll taxes on the amount of his business expenses. | ||
| + | In some situations, the result can approach a 50% tax savings. How's that, you say? 30% federal income tax, 6% state income tax, and 15% FICA/Medicare tax. 50%, plus or minus. | ||
| + | }} | ||
Revision as of 14:15, 1 November 2009
Discussion Forum Index --> Advanced Tax Questions --> S-Corp Owner/Employee Reimbursements
Discussion Forum Index --> Tax Questions --> S-Corp Owner/Employee Reimbursements
| 31 October 2009 | |
| I will be doing my first S-corp return in 2010 for 2009. I am new to S-corps and I learned about them studying for the EA exam but I have a question that I couldn't find a solid answer for on this board.
I have a client who is a 100% owner of his S-corp for his computer consulting business. He does not have any employees except for himself. He takes a paycheck for 50% of his income and takes the other 50% in distributions when needed. He is paying his cell phone bill from his personal bank account and having the business give him a cell phone allowance of about $100 a month on his paycheck. He is also getting a mileage allowance of .55ct a mile on his paycheck for business use of his vehicle. And last the business is reimbursing him for the business use of a home office about 200 month on his paycheck. I would assume that the S-corp would take a deduction for the cell phone, the mileage and the home office but how is this handled on his personal return. Will those amounts he receives as an allowance or reimbursement be added to his income on his W-2? This is all new to me so I hope I explained it correctly. I am going to be doing more and more S-corp's so I want to make sure I understand how to apply the tax laws correctly. Thanks! GTSEA09 | |
| 31 October 2009 | |
| He needs actual expenses and actual receipts. It sounds like he does not have a bookkeeper to keep him honest and so the job falls to you.
Try and scare him into doing the right thing: http://www.taxalmanac.org/index.php/Discussion:I_love_it!_US_Tax_Court_on_lack_of_documentation If he does not clean up his act, you'll have to fire this client. He'll soak up more time than you ever imagined. | |
| 1 November 2009 | |
| There are 2 ways to reimburse:
1) A non accountable plan. No receipts are required. It's a set amount each month. Example the cell phone allowance is $100/mo according to the OP. This gets added to the gross wages, subject to all taxes. When the 1040 is done, do a 2106 list the expenses less the reimbursements. 2) An accountable plan: Keep a log of the expenses and the receipts. Submit at regular intervals to the corp. The corp will reimburse the exact amt of the bills. Then the corp has the various expenses on the books. It does not go through the p/r. No extra taxes w/h. It does not appear on the 1040 unless a 2106 is needed for some unreimbursed item. This is not only for s corps. It is for any business. | |
| 1 November 2009 | |
| Method 1. Does need receipts and records. Look carefully at the instructions for 2106. These deductions are then subject to 2% AGI.
With Method 2, there is no 2% AGI. More work up front, but preferable - every thing gets documented and paid as you go along. No-dog-ate-my-receipts at the end of the year. | |
Death&Taxes (talk|edits) said: | 1 November 2009 |
| The 55 cents a mile is fine as long as he turns in an expense reporting detailed where, when and why he drove. The Corp deducts the expense and he does not have to account for it on his return.
He is not accounting for his cellphone usage; the $100 should be part of his wages. I realize it is difficult in these days of flat fees for phones to make an accounting, but this could be a problem. I note that my cellphone service stopped giving itemized bills two years ago. The $200 [or is it about $200, a different amount each month?] might also be wages if not accounted for. Read Publication 463 carefully. | |
Harry Boscoe (talk|edits) said: | 1 November 2009 |
| We may have failed to emphasize the benefit of "Method 2" - the "accountable plan" - compared to "Method 1".
The results of using an "accountable plan" for reimbursement of employee business expenses are way far superior to what "less sophisticated" approaches get you. The taxpayer can completely avoid the 2% haircut of his miscellaneous itemized deductions that can cost him a portion - or maybe all - of the income tax benefit of his business expenses. The taxpayer and his employer can completely avoid payroll taxes on the amount of his business expenses. In some situations, the result can approach a 50% tax savings. How's that, you say? 30% federal income tax, 6% state income tax, and 15% FICA/Medicare tax. 50%, plus or minus. | |
