What are the rules for Accountable Plan?
Check whether the rules fit your situation, then review the worked example, requirements and records.
Depends on your facts
Reviewed by Ebot Mbi, CPA, EA · Last reviewed October 9, 2026
How it works
Check eligibility
Match the strategy to your facts, entity, timing, and the rules that apply.
Work through the numbers
Use the stated assumptions and compare the tax result with the cost and trade-offs.
Document and file
Keep contemporaneous records. Your external tax preparer handles return preparation and filing; this is not a tax-preparation service.
Which sounds like you?
Terms used in this guide
A deduction reduces taxable income; a credit reduces calculated tax; deferral changes when tax is due.
The Internal Revenue Code (IRC) is federal tax law; Treasury regulations explain its rules; IRS publications explain the agency's guidance.
- depreciation:
- deducting an asset's cost under the applicable tax recovery rules.
- safe harbor:
- a defined method or condition that receives specified tax treatment.
- pass-through:
- an entity whose tax items generally flow to its owners.
- recapture:
- bringing certain earlier tax benefits back into taxable income.
In brief
Owners of S-corporations and C-corporations who are also employees cannot deduct their own unreimbursed business costs. An accountable plan fixes that: the company reimburses you for home office, mileage and phone, deducts the payment, and the money reaches you tax-free. For a typical owner that is a few thousand dollars a year of deductions that would otherwise be lost.
Who it fits
- S-corporation and C-corporation owners who work from home or drive for the business.
- Owners who pay business costs personally: phone, internet, travel, supplies.
- Companies with employees who incur costs on the company's behalf.
- Owners willing to keep a mileage log and submit expense reports.
Who it's not for
- Sole proprietors and single-member LLCs taxed as sole proprietorships. They already deduct these costs directly on Schedule C.
- Owners who will not substantiate expenses within a reasonable time.
- Anyone hoping to reimburse personal costs. Only business expenses qualify.
How the rule applies
Since 2018, employees cannot deduct unreimbursed business expenses on their personal return, and the 2025 law made that permanent. An owner-employee who pays a company cost personally gets no deduction anywhere.
A written accountable plan, adopted by the company, lets it reimburse those costs. It must meet three tests: the expense has a business connection, you substantiate it within a reasonable time, and you return any advance you did not use.
Under the regulation's safe harbor, substantiating within 60 days and returning excess within 120 days is reasonable. Many owners submit monthly or quarterly.
Common items: the business share of home costs for a home office used regularly and exclusively for business; business miles at the IRS standard mileage rate set each year; the business share of phone and internet; and travel.
Payments under the plan are not wages, not on a W-2, and not subject to payroll tax. The company deducts them under normal rules. Payments that fail the tests are treated as taxable wages.
Worked example
Illustrative: an S-corporation owner in the 32% bracket uses 300 of 3,000 square feet of the home as a dedicated office, and pays phone and internet personally.
- Office share: 300 / 3,000 = 10%.
- Annual home costs (mortgage interest, property tax, insurance, utilities, repairs): $30,000 x 10% = $3,000.
- Phone: $1,800 x 70% business use = $1,260.
- Internet: $1,200 x 50% business use = $600.
- Total reimbursed: $3,000 + $1,260 + $600 = $4,860.
- Company deduction reduces pass-through income: $4,860 x 32% = $1,555 of federal income tax.
About $1,555 of federal income tax kept this year, plus any business mileage reimbursed at the IRS rate, on costs that would otherwise give no deduction.
Illustration only; not a promise or projection of your results.
The rules
| Rule | Citation |
|---|---|
| Reimbursements under an accountable plan are excluded from the employee's income. | IRC §62(a)(2)(A); IRC §62(c) |
| A plan must require business connection, substantiation, and return of excess amounts. | Treas. Reg. §1.62-2(c) |
| Substantiation within 60 days and return within 120 days is treated as reasonable. | Treas. Reg. §1.62-2(g)(2) |
| Home office costs require regular and exclusive business use. | IRC §280A(c)(1) |
| Vehicle and travel expenses need records of amount, time, place and business purpose. | IRC §274(d) |
Watch-outs
- No written plan, or no expense reports, turns reimbursements into wages.
- A flat monthly allowance with no substantiation is a non-accountable plan and is taxable.
- Home office square footage used for anything personal fails the exclusive-use test.
- Do not also deduct the same costs on Schedule A or Schedule E. One deduction per dollar.
What we do
We draft the plan resolution for your company's records, build the reimbursement worksheet for home office, mileage and phone, and post the entries so the company deduction and your W-2 are both right. At year-end we tie it to the return.
Questions
Does the home office reimbursement cause depreciation recapture when I sell my home?
If the company reimburses depreciation on the office portion, that depreciation can be taxed when you sell. We can leave depreciation out of the reimbursement to keep the home sale simpler.
Can I reimburse myself once a year?
Only if you substantiate within a reasonable time. Monthly or quarterly expense reports are the safer practice.
Do I need to adopt the plan in writing?
The regulation does not strictly require a written document, but a board resolution is the best evidence the plan exists and was followed. We recommend it.
General education under 2026 federal law. Examples are illustrative, not client results. Not tax advice for your situation.