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TERA TRAVEL JOURNAL PERMANENT PROFESSIONAL

Proving telephone and internet expenses can test practical limits as well. Reimbursements must have a clear correlation to actual expenses.

If the employee would receive the same amount of compensation anyway, the business connection requirement is not met. For instance, if a janitor is required to provide his or her own cleaning supplies and is paid $200 per day, an employer cannot simply designate $50 of the janitor's pay as reimbursed cleaning supply expense. In instances where employees are required to routinely provide their own tools and materials, reimbursement schemes should not resemble wages. Reimbursement for small tools can be a gray area that should be documented carefully (see Rev. Examples of nondeductible entertainment expenses under the TCJA include (Regs. If an employer reimburses entertainment expenses, the reimbursement must be treated as wages (Regs. Entertainment expenses are no longer deductible as such at all under the TCJA (Sec. For instance, meals may be reimbursed at 100% of the cost, even though the expense is only 50% deductible by the company. Reimbursing an expense does not change the deductibility of the expense itself.

TERA TRAVEL JOURNAL PERMANENT PROFESSIONAL

Dues, subscriptions, and professional licenses.

Gas or mileage expenses (either actual or per diem).

Travel expenses (either actual or per diem).

A purchase for a legitimate business purpose is anything that is deductible under Regs. BUSINESS CONNECTIONīefore a reimbursement can be made, the employer must authorize the purchase for a legitimate business purpose. In other words, the reimbursements are taxable compensation to the employee and subject to employment taxes. If any of the three conditions isn't met, the reimbursement arrangement is treated as a nonaccountable plan.

The employee must return any money not spent to the employer, also within a reasonable period.

The expenses must be substantiated within a reasonable period and.

The expenses must have a business connection.

To offer an accountable plan, an employer must comply with three standards: It may be helpful to analyze these requirements and related regulations from the employer's and employee's respective viewpoints. 274(d)) or if it allows the employee to retain any amount exceeding the substantiated covered expenses. 62(c) further specifies that an arrangement will not be treated as a reimbursement or other expense- allowance arrangement if it does not require the employee to substantiate the expenses covered under the arrangement (apart from certain exceptions under Sec. These deductions include expenses of employees paid or incurred by them in connection with their performance of services as an employee, if the expenses are reimbursed under a reimbursement or other expense- allowance arrangement with the employer (including such a reimbursement provided by a third party) (Sec. 62(a) as gross income minus certain deductions. Given the changes, it is a good time for CPA tax practitioners to review their clients' existing accountable plans and help those who want to establish one.

115- 97, redefined the deductibility of business expenses and disallowed the deduction of out- of- pocket expenses paid by employees on their personal tax return. The law known as the Tax Cuts and Jobs Act (TCJA), P.L. Accountable plans are a flexible tool to incentivize employees to pursue business goals and to facilitate employee- owners' deductions of expenses they incur in running their businesses. Conversely, if reimbursements are not legitimate business expenses or are not properly documented, they are taxable income to employees. They can do so - and the business can still claim a deduction for the expenditure - if their employer reimburses them through an accountable plan.Īccountable plans work on the simple concept that if reimbursement payments to business owners and their employees are properly claimed and documented, they are not taxable to the recipient. If employers reimburse the expenditures, employees might have to include the amount as taxable compensation but would generally prefer to receive a reimbursement tax- free, especially where they received no net benefit.

In most cases, they do so either expecting to be reimbursed or, until the end of 2017, expecting to claim the expenditures as a miscellaneous itemized deduction (above a threshold of 2% of adjusted gross income (AGI)). Employees, including business owner/employees, often are required to pay expenses out of pocket on behalf of their employer or business.