Most agency owners running S-Corps are overpaying their taxes
The reason is usually the same: they never set up an accountable plan. It’s one of the most straightforward deductions available to S-Corp owners, and it’s consistently the one we find missing when a new client comes to us.
What an Accountable Plan Is
An accountable plan is an IRS-approved reimbursement arrangement that lets your S-Corp reimburse you for business expenses you incur personally: mileage, home office, phone, equipment. Those reimbursements are deductible for the business and tax-free for you as the owner.
Done wrong, or not done at all, you’re either paying for those expenses out of after-tax dollars, or your bookkeeper is treating the reimbursements as distributions. Either way, you’re leaving money on the table. For most agency owners, the annual savings from a properly structured accountable plan run between $5,000 and $15,000, sometimes more.
What Qualifies
The IRS has three requirements. Expenses must have a legitimate business connection. You have to substantiate them: receipts, mileage logs, documentation of business purpose. And if you receive any reimbursement that exceeds the actual expense, the excess goes back to the company within a reasonable timeframe.
In practice, this isn’t complicated. It just requires a process. Common expenses that work well under an accountable plan include home office use (calculated by square footage), business vehicle use (cents-per-mile or actual costs), cell phone (business-use percentage), and equipment or software you bought personally but use for work.
A handshake arrangement or an informal “I’ll pay myself back” doesn’t meet the IRS standard. You need a written plan document and a consistent reimbursement process. The paperwork is light. The savings are not.
Why Most Agencies Don’t Have One
Usually it comes down to two things: they didn’t know it existed, or their CPA never brought it up. It doesn’t get flagged unless someone is looking at the full picture of how the business is structured and how the owner is being compensated.
Setting one up is not a heavy lift. Once it’s in place, it runs on its own. The payoff is real and it repeats every single year.
If this sounds like your agency, we’re happy to take a look. Get in touch.
