New S Corp - reimbursement of expenses

What is the proper way for the corp to pay for or reimburse individual expenses for things like health insurance, telephone, and vehicle use if these accounts are currently in the individual's name?
I see three options: 1) Use corp checks or credit card to pay these expenses directly. I can see how an expense account/corp credit card could be used to cover things like gasoline, but using corp checks to pay for the other items seems too much like a mixing of personal and business accounts.
2) Have the individual pay these items as usual, and have the corp issue reimbursement checks. As long as the corp has adopted this policy, it seems like the easiest way to maintain some formal separation.
3) Establish completely new accounts with each vendor under the corp name, formally transfer the vehicle to the corp, etc. Cleaner, but more effort.
What practices have been challenged? Is there a place to read about this?
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The items - "health insurance", vehicle expenses, etc. require special tax treatment with limitations so it's not simply choosing the best way of getting reimbursed or maintain a "separation". If you are unfamiliar with the proper tax accounting for "corps" and how it impacts your personal return you should see a local accountant to explain and set up the procedures for you, you could ask in news:misc.taxes.moderated but still seek a knowlegable accountant now, this will end up saving you money!
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Dave wrote:

I understand there are subtleties. I am looking for best practices for a small, profitable s-corp. Even after a little bit of reading, I can see that #1 above would not be the way to do it. Proper separation of personal and business activities is an important criteria used by the IRS to challenge tax status.
Until I can get the ear of my CPA, I am going with option #2. I have to write checks today ;0.
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On 5/22/05 8:48 AM, in article fZ0ke.43253$Qp.1217@fed1read04, "tns1"

Health insurance: the corporation can pay this for you or reimburse you for what you pay. Either way, it becomes wage income to you, subject to withholding but not to FICA (you get to deduct it on your personal 1040).
Telephone is best handled as reimbursement to you for the business portion of the phone bill. The base rate plus associated taxes and fees for the first line in your home are not business expense; everything else for the first phone except personal long distance plus a second line you use solely for business are reimbursable.
Vehicle use is best handled by submitting a reimbursement request to the corporation for the business miles driven on a monthly basis (40.5 cents per mile in 2005).
There are other expenses that interrelate between you and your corporation; you should discuss these with a tax pro to be sure you're handling them correctly.
--
Tom Healy, CPA
Boulder, CO
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On Sun, 22 May 2005 19:38:56 GMT, Thomas Healy

Health insurance premiums, whether paid directly or indirectly, are only taxable under certain conditions (2% shareholder, HCE) and I am not so sure that the OP meant only reimbursing shareholders.

My company issues a cell phone to nearly every employee; however, some employees preferred to just use their own and be reimbursed. We reimburse the employees who have chosen to use their own phones at the same rate we pay for the company owned phones. Some of these employees do not have any phone other than the company cell phone and use it as their primary phone at home, as well; however, with free nights and weekends, their use of the phone for personal use is a de minimus fringe benefit. It is only when an employee goes over minutes that we begin to break down what was personal and what was business and have, on ocassion, had the employees reimburse us for what was excess personal use.

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Beverly wrote:

Mainly employees who are officers of the corp. and major shareholders. Aside from premiums, can't the corp. have a policy to reimburse all medical, even elective items, and have those reimbursements NOT be taxed as wages? After all, a small co. is not necessarily able to get a better plan for its employees than an individual would.
For instance, if the pres wants to go get his teeth whitened or his baggy eyelids fixed, the corp gets a better looking representative in return. To protect against abuse there might be a stipulation that he remain in his position for a year or two or face repayment for these perks.

The corp could issue cell phones, but why if it doesnt have to? It seems simpler to have a policy for reimbursement up to a set amount, or no limits for principal officers as a minor perk. Just $100 a mo will buy more minutes than I could ever use.
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According to IRS publication 15b, anyone who is a 2% or better shareholder will have payments/reimbursements for health related benefits taxed. It does not distinguish between premiums and copays/uncovered items. Of course, the individual is always welcome to itemize these expenses on his/her own return.

This is not going to matter because it makes the President, a HCE, a beneficiary to self-insured plan that favors HCEs.

Alas, in my company, the cell phones are the employee's business "extension." We use VOIP and transfer calls to the cell phones instead of providing a desk phone to everyone. As it turns out, the business plan we use for cell phones provides more daytime minutes per phone than an equivalent number of individual plans would at a lower price. If we did strict reimbursement, it would cost us over double what we pay. Since we ask the employees to use the phone as their main phone all day, we cannot justify mandating a standard reimbursement which may or may not cover the business use.
This is not to say that a simple reimbursement plan is not feasible in many instances.
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Beverly wrote:

Then I suppose its just lumped into a non-wage distribution instead, and not called anything like medical reimbursement.

Neat idea. I imagine this lets the Co save all the business conversations in the same way that all emails are saved. Some privacy issues for the lawers I'll bet.
As it turns out, the

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It really doesn't matter what the expense account is called, the substance of the transaction would be a distribution which is taxable. What you are suggesting is an attempt to hide the substance of the transaction and would constitute fraud.

What are you talking about? There is nothing that records any conversations in the VOIP system or the cell phone system. Have you been watching too much television?

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Beverly wrote:

Anything that uses the company's network can be captured. There are several tools that can be used to record a VOIP conversation. Here's a free one that works on Linux and Windoze.: http://www.ethereal.com /
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_____cliff_rayman_____________________________________
Business Consulting and Turnaround Management
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On Sat, 28 May 2005 19:28:59 GMT, ___cliff rayman___

Let me rephrase what I said. There is nothing in *my company* which records any conversations in the VOIP system or the cell phone system. We chose VOIP for two reasons... cost and ability to transfer calls to cells without tying up a line. I was part of the decision making process and know recordability was never discussed.
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Beverly wrote:

Good to know. Like everyone else here, I am looking for the best legal methods to reduce the tax burden. You cannot do this without learning about the practices are OK, and which are not (gasp!). So - a non-wage distribution for the purpose of medical reimbursement is not OK. But isn't it true that a generic non-wage distribution in many cases is perfectly ordinary and acceptable regardless of how those monies are ultimately spent by the receiving party?

Whether you know it or not, the potential is there. I was simply observing how VOIP would make it easier to save business conversations as files, a feature companies might like. You can bet that every telemarketing Co is doing just that. I suspect there are legalities, but don't know what they are. Any tv is too much tv. Sorry for getting off-topic.
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I can't think of a situation where money is given to an employee without there being a burden of proof that it was exempt from taxes. I'd be interested in hearing why you believe that a generic non-wage distribution in many cases is perfectly ordinary and acceptable regardless of how those monies are ultimately spent by the receiving party. Do you have specific examnples? I can reply better with specific examples.

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Beverly wrote:

Maybe I am not using the proper terminology. Bear in mind I am talking about corporate officers who are shareholders. They may receive salary taxed as wages, and other benefits not taxed as wages such as: The cell phone we talked about, Use of or reimbursement for vehicle costs, Stock options, Dividends, Business travel expenses, Use of corporate apt., Misc office expenses, etc.
Surely you are familiar with some of these? All of these look like non-wage distributions to me. If not, what do you call them? Some are taxed as capital gains, and some appear to be strictly expenses which are not taxed at the corporate or personal level. Some might be paid directly by the corp, or might be paid by the employee and be reimbursed. I am trying to identify each class of 'benefit' with the goal of providing a high value per tax employee package.
If this isn't the forum for this, please point me to one.
. non-wage distributions in the form of dividends, and shareholders. Anything that falls under the catagory of capital gains will not be taxed as wages
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if you are asking about reimbursement for business expenses paid by an employee or shareholder (with no personal benefit) they are generally non-taxable (with proper documentation) but there are a lot of rules for a > 5% shareholder of an s-corp. Employee benefits such as health insurance or life insurance have other income tax limitations. There is no "generic non-wage distribution" category so your best option is to discuss plans with a local accountant familiar with your business or you could ask in a tax newsgroup such as news:misc.taxes.moderated
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