If you operate your business as a C corporation or an S corporation, it’s essential to understand how travel and other business-related expenses should be handled. Unlike a sole proprietorship, where business and personal finances are often intertwined, a corporation is a separate legal entity. That means there’s a proper way—and a wrong way—to seek reimbursement for business expenses.
Let’s break down the correct approach to getting reimbursed and why it’s so important for both tax savings and compliance.
Understanding the Relationship Between You and Your Corporation
As a shareholder or owner of a corporation, you are also an employee of the company. This distinction matters because:
✅ The corporation is its own legal entity—separate from you.
✅ The corporation itself must pay for business expenses in order to claim deductions.
✅ If you pay for business expenses out of pocket, the corporation must reimburse you for it to claim the deduction.
If you don’t submit your expenses for reimbursement, the corporation doesn’t get a deduction, and you miss out on a tax-free reimbursement.
Can You Deduct Business Expenses Personally?
No Deduction for 2018-2025
Before 2018, employees could claim unreimbursed business expenses (such as travel, meals, and mileage) as itemized deductions on their personal tax returns.
However, the Tax Cuts and Jobs Act (TCJA) eliminated this deduction for tax years 2018 through 2025. That means:
🚫 You cannot deduct business expenses you personally pay for if you don’t get reimbursed.
🚫 It doesn’t matter if the expenses were legitimate or necessary for your business.
🚫 The only way to benefit from these expenses is by having your corporation reimburse you properly.
What About 2026 and Beyond?
Currently, it’s unclear whether this deduction will return after 2025. Lawmakers may extend the rule—or even make it permanent. Either way, the best practice is to ensure your corporation reimburses you for any expenses you cover.
The Right Way: Use an Accountable Plan
The IRS allows corporations to reimburse employees tax-free under what’s called an accountable plan. When done correctly, this method ensures:
✅ You receive reimbursements tax-free.
✅ The corporation gets a full deduction.
✅ Proper documentation is in place, reducing IRS audit risks.
How to Structure an Accountable Plan
To make sure your reimbursements follow IRS rules, stick to these steps:
1. Keep Detailed Records
📌 Track all business-related expenses, including:
- Receipts for travel, lodging, meals, and other expenses
- Mileage logs for business-related driving
- A clear explanation of the business purpose
2. Submit an Expense Report
📌 Provide your corporation with a written report detailing:
- The date and amount of each expense
- The business reason for each cost
- Any necessary supporting documents (e.g., receipts)
3. Get Reimbursed Promptly
📌 The corporation should pay you back within a reasonable time frame. Delays could create tax complications.
4. Return Any Overpayments
📌 If your corporation advances you money for expenses but you don’t spend it all, you must return the excess amount.
Why Proper Reimbursements Matter
Failing to follow these rules can lead to serious tax consequences. The IRS expects corporations to operate as separate legal entities, even if you own 100% of the company.
If you don’t properly document reimbursements:
🚫 The IRS could disallow deductions for your corporation.
🚫 You could face tax penalties or audits.
🚫 Your reimbursements could be treated as taxable income instead of tax-free payments.
The solution? A well-structured accountable plan keeps everything compliant, maximizes tax savings, and protects you in case of an audit.
Tools to Help You Stay Compliant
To simplify your reimbursements, use structured expense report templates for:
📌 General Business Expenses – A standard employee expense report for travel, meals, and lodging.
📌 Home Office Reimbursements – If your corporation reimburses you for a home office, use a home office reimbursement form.
📌 Vehicle Expenses – If your corporation reimburses you for using a personal car, use an employee vehicle reimbursement form.
Final Takeaways: Don’t Leave Money on the Table!
If you pay for business expenses personally, don’t assume you can deduct them on your tax return—you can’t (at least until 2026 or later). Instead, follow the correct process:
✅ Submit your expenses to your corporation for reimbursement.
✅ Ensure your corporation follows an accountable plan to keep payments tax-free.
✅ Keep records and receipts to stay compliant and protect yourself in case of an audit.
By handling reimbursements properly, you get tax-free money back, and your corporation gets the deductions it deserves. It’s a win-win!
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