Monday, March 21, 2011

Better safe than sorry

Tax Tip:  Having a separate business entity such as an LLC, Partnership or Corporation is a great way to separate business from personal expenses if you have the type of business and degree of profitability to offset the additional costs of maintaining the entity.

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.

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