SPECIFIC EXPENSE ACCOUNT POLICIES FOR THE SMALL BUSINESS In an effort to control spiraling travel and other business-related expenses, some companies have developed reimbursement policies that spell out in detail the various travel expenses that qualify for reimbursement. Employees who find that they are incurring business-related expenses need to determine from their employer exactly what types of expenses are reimbursable, and companies-especially small business owners-need to make sure that employees do not take advantage of expense account policies with excessive spending on lodging, food, and entertainment-never mind fraudulent reporting thereof. Sarbanes-Oxley is unlikely to affect most small businesses, but fall-out in the form of tightened record-keeping requirements or revised per-diem rates permitted by the IRS have to be watched.įor this reason, it is in the best interests of both employer and employee that all affected parties have a complete understanding of expense accounts and reimbursable expenses. The corporate scandals (Enron, WorldCom) have resulted in important legislation, the Sarbanes-Oxley Act of 2002, which requires much closer tracking and record-keeping by publicly traded corporations. Changes are also triggered by the passage of new legislation. But then, in 2000, the IRS changed restaurant rules again, requiring receipts for meals only if the meals cost $75 or more in 2002 the IRS changed per-diem deduction rules. In 1994, for example, deductions for meal expenses were reduced from 80 percent to 50 percent. The tax laws affecting business-related expenses change at intervals as the IRS revises its regulations based on its own experience changes are almost yearly. Even then, the expenses are deductible only if they exceed 2 percent of the employee's adjusted gross income. Funds employees receive under nonaccountable plans are treated as income, subject to withholding, and such expenses are ductible by the employee only as a miscellaneous itemized deduction.
It is not reported as wages or other compensation, and it is exempt from withholding.Ĭompanies that fail to require employees to substantiate their expenses or allow employees to retain amounts in excess of substantiated expenses are considered by the IRS to have "nonaccountable" plans. If the company's plan is in fact an accountable plan, then all money received by an employee under the plan is excluded from the employee's gross income. Expenses may not be aggregated into broad categories, and they may not be reported using vague terminology. Substantiation means that the employer must be able to identify the specific nature of each expense and determine that the expense was business-related. An "accountable" plan must meet the certain requirements of the Internal Revenue Service: there must be a business connection expenses must be substantiated (usually through a receipt) and any amount received by an employee in excess of actual expenses must be returned to the employer. Of particular interest to businesses and their employees is the tax treatment of business-related expenses, the types of expenses for which employees will be reimbursed, and the manner in which those reimbursements are made.įor tax purposes a company's expense account plan is either accountable or nonaccountable. These expenses include travel, entertainment, gifts, and other expenses related to the employer's business activity. Expense accounts, also called expense allowances, are plans under which companies reimburse employees for business-related expenses.
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