The accountable plan is a policy within your company or your entity, which outlines how you reimburse yourself as an owner, employee, or shareholder-employee. And if you have team members within your business, the accountable plan is a good policy for them to get reimbursed for expenses as well.
One of the ways you get compensated for your business is wages, distributions, and expenses. And so, you’ve got to know which for what and an accountable plan is a great way to get reimbursed for those expenses. But first, let’s differentiate home office reimbursements from home office deductions. Yep! Those two are not the same.
The home office deduction is for the Schedule C filer, which is the sole proprietor or the single member LLC. The home office reimbursement, on the other hand, is a potential tax strategy that a corporation or partnership can use in their accountable plan. Specifically, the home office reimbursement is an expense report to reimburse the employee of a corporation or a partnership when using their home for business purposes.
Now, there's a process to determine accountable plan reimbursements for your home office. These are just some examples for your home office reimbursements. We encourage you to reach out to your tax accountant if you have any questions about how this looks for your business.
Home Office Deduction and Home Office Reimbursement
Home office deductions are for the schedule C filer, which is the sole proprietor or the single member LLC.
The home office reimbursement is a potential tax strategy that you can consider by filing for a reimbursement through your company, through your corporation or your partnership in your accountable plan.
If you need more clarity on this, please talk to your tax accountant or your CPA. We do not want you to go rogue and try to figure this out on your own. We don't want to run with scissors when it comes to tax and tax strategy.
Expenses For Home Office
With our clients, we have somewhat of a template that we use to go through some of these questions to help determine what the reimbursement should be monthly. Here are some of the questions that you could be asked when determining your home office reimbursement. These should be actual numbers and not estimates.
Do you rent or own your home?
The rent or own question is really important because when you own a home, you typically have a mortgage and the mortgage is compiled of principle interest. Then the escrow amount, like insurance, property taxes and things like that.
When you own a home, you get to report the annual mortgage interest, the annual property taxes, the annual home insurance, and any other fees you don't get to just put the payment. When you rent, you get to just choose your rent payment.
Homeowners or renters insurance
Homeowners or renters insurance is part of this. If you are renting and do not have renters insurance, we encourage you to get renters insurance now.
This also includes any HOA, or Homeowner Association, fees. If you are renting you likely do not have those but you could so you would want to note those.
Cost of utilities
The utility expenses are a little more in depth but again we want to stress that these numbers should come from your utility bills and not just be an estimate. This includes the following:
- Water & Sewer
- Gas & Oil
- Trash & Recycling
Repairs and maintenance fees
Any home maintenance that you do would fall under this category. Anything that you did to help your home, improve your home, repair your home, or keep your home in great working condition. Those receipts would essentially be fees related to that.
Home office square footage
Knowing your home office square footage is important in determining your reimbursement amount. This is the place where you conduct business and handle your business.
What you generally need to know is what the percentage of your home is being used for your home office. To get that number you take the total square footage divided by the square footage of the office and that gives you the percentage of your office.
If you want to learn more about home office reimbursements, check out Episode 099: How to Determine Accountable Plan Reimbursements for Home Office – Part 2 .