If you cover your employees' business travel and entertainment expenses, start the new year off right by setting up an "accountable plan." This type of plan will save you and your employees money.
What is an accountable plan? It is an arrangement in which your employees must do the following:
- Account to you for their expenses within 60 days after the expenses were paid or incurred (by providing you with adequate record keeping)
- Return to you within 120 days any excess reimbursements or allowances (amounts over the actual cost of business travel and entertainment)
You do not need a formal "plan" (as you do for a retirement plan). You only need to set up procedures for employees to follow.
Consequences of having an accountable plan. As an employer, you do not treat the reimbursements as compensation. Thus, you do not have to pay any employment taxes on them nor include them on employee W-2 forms. You simply deduct the T& E expenses as company business expenses to the extent allowed by the tax rules.
From your employees' perspective, having an accountable plan means that since reimbursements are not included in their income, they do not have to complete IRS Form 2106 to figure deductible T& E expenses (there is no deduction since expenses and reimbursements are equal and handled at the employer level).
For more information about accountable plans, go to the IRS Web site and download Publication 463: Travel, Entertainment, Gift, and Car Expenses.
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BARBARA WELTMAN is an attorney and a trusted professional advocate for small businesses and entrepreneurs. She is the author with such titles as J.K. Lasser’s Small Business Taxes and Smooth Failing, and she contributes regularly to American Express OPEN and SBA.gov. Her articles have appeared in the Wall Street Journal and U.S. News and World Report. Weltman is also the publisher of Idea of the Day and monthly e-newsletter Big Ideas for Small Business at www.barbaraweltman.com and hosts radio shows and podcasts, including Build Your Business radio. She has been named one of the 100 Small Business Influencers in the U.S. for the third year in a row.
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