These separate taxable entities live on paper, which means there is considerable extra paperwork involved in order to maintain them. One essential, often overlooked, is to have an accountable business reimbursement plan.
For a plan to be considered accountable, the following requirements must be met:
- The expenses must have a business purpose
- The employee must properly substantiate the expenses to the employer, and
- In the case of allowances or advances, any amount in excess of the substantiated expenses must be returned to the employer.