Business Tax

Any employer reimbursing its employees for business-related expenses should consider whether the reimbursement arrangement meets the IRS’s requirements for an “accountable plan.” Having an accountable plan that meets tax law requirements can provide tax advantages. Our Houston, TX CPA firm can assist with all your business accounting and tax needs.

Business Connection

Each expense reimbursed under an accountable plan must have a “business connection.” This means that the expense must be allowable as a deduction and paid or incurred by the employee while performing services as an employee.

Other Requirements

Employees must adequately account for their expenses and return any excess reimbursements or allowances within a “reasonable period of time.” The meaning of reasonable period of time depends on the facts and circumstances, but the IRS has provided several safe harbors.

Substantiation of an expense within 60 days after it is paid or incurred will be deemed reasonable, as will the return of an advance within 120 days. Alternatively, an employer may provide its employees with periodic statements (at least quarterly) that require them to either account for or return any advances within 120 days of the statement.

Tax Effects

Expense reimbursements made under an accountable plan that meets the requirements

are not included in an employee’s wages and are not subject to federal income or employment taxes. This can be a tax saver for both the employer and the employee.

If no accountable plan is in place, amounts paid to the employee count as taxable wages. The employee can potentially deduct the expenses, but only if the employee itemizes deductions rather than claims the standard deduction. The employee’s deduction for employee business expenses and other miscellaneous expenses is limited to the amount that exceeds 2% of adjusted gross income.

Connect with us at 703-907-0000 for tax advice and business planning.

As a business, you need a strong financial partner who will help you navigate the daily accounting function of your business – including your taxes. As you get ready to prepare your taxes for you business, our Houston CPA Firm can assist with any business tax planning and preparation services you might need. We’re committed to reducing taxes for our business clients and helping you know what you need to do so you get it done right. Today, we’ll take a look at your responsibility when it comes to payroll taxes.

Any business with employees must withhold money from its employees’ paychecks for income and employment taxes, including Social Security and Medicare (FICA) taxes, and forward that money to the government. A business that knowingly or unknowingly fails to remit these withheld taxes in a timely manner will find itself in trouble with the IRS.

The IRS may levy a penalty, known as the trust fund recovery penalty, on individuals classified as “responsible persons.” The penalty is equal to 100% of the unpaid federal income and FICA taxes withheld from employees’ pay.

Who’s a Responsible Person?

Any person who is responsible for collecting, accounting for, and paying over withheld taxes and who willfully fails to remit those taxes to the IRS is a responsible person who can be liable for the trust fund recovery penalty. A company’s officers and employees in charge of accounting functions could fall into this category. However, the IRS will take the facts and circumstances of each individual case into consideration.

The IRS states that a responsible person may be:

• An officer or an employee of a corporation

• A member or employee of a partnership

• A corporate director or shareholder

• Another person with authority and control over funds to direct their disbursement

• Another corporation or third party payer

• Payroll service providers

The IRS will target any person who has significant influence over whether certain bills or creditors should be paid or is responsible for day-to-day financial management.

Working with the IRS

If your responsibilities make you a “responsible person,” then you must make certain that all payroll taxes are being correctly withheld and remitted in a timely manner. Talk to us if you need to know more about the requirements. We can also help you analyze your business’s cash flow so you’ll be in a better position to meet your obligations to the IRS.