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
What practices have been challenged? Is there a place to read about this?
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!
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.
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
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.
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.
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
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?
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.:
Business Consulting and Turnaround Management
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.
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
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
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,
Business travel expenses,
Use of corporate apt.,
Misc office expenses,
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
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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