July 1, 2025
The accountable plan represents a critical, yet frequently underutilized, tax strategy for the owner-employee of an S-corporation. Its importance stems from a foundational principle of corporate law and taxation: the S-corporation and its owner are distinct legal and tax entities. This separation creates a significant financial challenge. When a shareholder-employee pays for a legitimate business expense with personal funds—such as for business travel, office supplies, or the business use of a personal vehicle—the corporation cannot directly deduct that cost. Compounding this issue, the Tax Cuts and Jobs Act of 2017 (TCJA) suspended the miscellaneous itemized deduction for unreimbursed employee expenses through 2025, meaning the owner also cannot deduct the expense on their personal tax return.2 In this scenario, a valid business expense deduction is lost entirely, forcing the owner to bear the cost with after-tax dollars.
The accountable plan is the formal, IRS-sanctioned mechanism designed to resolve this dilemma. It establishes a framework under which the corporation can reimburse the shareholder-employee for out-of-pocket business expenses. When structured correctly, this arrangement allows the corporation to claim a full deduction for the expense while the reimbursement received by the owner is entirely tax-free. This creates a "win-win" outcome, preserving valuable deductions and enhancing the tax efficiency of the S-corporation structure.
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