From hotel stays and meals to rental cars and tolls, the life of a sales representative typically involves paying on-the-road business expenses. Although many companies reimburse these costs through accountable plans, the tax code presents some tax planning challenges for reimbursing expenses. If you work in sales and spend a significant amount of time traveling, here’s what you should know about accountable plans and why your employer should establish one.

What Is an Accountable Plan?

It’s a reimbursement arrangement that covers out-of-pocket business-related costs incurred by employees. An accountable plan applies only to expenses deemed deductible by the Internal Revenue Service (IRS), including mileage and meals. An inventory of expenses must be substantiated with receipts, travel dates, locations, and details regarding the purpose of the expense.

Documentation for business gifts should include a description of the gift, date received, and the relationship between the employee and the giver. 

Without an accountable plan in place, employees may be responsible for paying taxes on reimbursed expenses. When an employer agrees to set up a plan, reimbursements are not considered taxable income.

Tax planning accountants encourage companies to set up accountable plans for auditing and other tax planning purposes. Expense receipts and records are necessary to verify the legitimacy of allowable business expenses. 

What Are the Effects of the New Tax Law?

The Tax Cuts and Jobs Act of 2017, which went into effect in 2018, has had an impact, for example, on employer-reimbursed relocation expenses. These expenses are now taxable as income. If an employee moves for business-related purposes, their unreimbursed moving expenses are no longer considered deductible under the new tax law.

Another change in the tax law involves employee advances for business-related travel. If the amount advanced is more than the reimbursed expense, the employee is required to return the excess after the trip ends.

The tax rules regarding employee reimbursements can be confusing. For clear and compliant guidance when establishing accountable plans, rely on the office of William G. Molitor, CPA. Based in St. Peters, MO, this accounting firm has extensive knowledge of the latest tax statutes. They work with a diverse range of small businesses in Greater St. Louis and will customize their services to fit your company’s unique financial needs. To learn more about accountable plans, call (636) 926-0502. Visit their website for details on the agency’s full suite of services.