Reimbursements and Using An Expense Report
Small business owners tend to make the mistake of commingling their monies. Business and personal purchases are on the same credit card. Without a system in place, those blurred lines make the IRS question everything about your tax reporting. Tax rules do not require a business to have an accounting plan. However, it is in your best interest to write out an accounting plan, so you and your employees know the policy for reimbursements and expenses.
When considering an accounting plan, there are four major requirements:
- There must be a business connection. Therefore, any expense you create for the business must arise while doing business.
- Substantiation. Employees must submit to the employer all elements of proof that the tax law requires for that expense.
- No excess payments. The employee must return any excess advances or reimbursements within a reasonable time, or the IRS will tax that excess payment as wages.
- Timeliness. Reimbursements and substantiation must be timely.
Using an Expense Report
An easy way to ensure you and your employees comply with the accountable plan rules is to use an expense report after you incur an expense. There’s no requirement to show your reimbursement documentation. However, an expense report is an easy way to comply with the elements of proof and keep accurate records of reimbursements.
Be on Time
The IRS likes your records to be as close in time to actual expenses as possible. Moreover, this helps with the burden of proof. Here are a few timely rules that the IRS always considers as “timely”:
- Advances made within 30 days of when an expense incurs.
- Substantiation of expense made within 60 days after the expense incurs.
- Return excess expenses made within 120 days after expenses incurred.
Free Expense Report Templates
- https://www.smartsheet.com/free-expense-report-templates
- https://templates.office.com/en-us/Expense-report-TM00000029
- https://www.businessformtemplate.com/category/expense
- http://www.spreadsheetshoppe.com/simple-expense-report-template/
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