The Right Way to Receive Reimbursements From Your Corporation

March 2nd, 2014 at 2:17 PM

Keep these basic rules when you operate your business as a Corporation:

1. You are an employee of the corporation
2. The corporation is a separate legal entity
3. The corporation is the business
4. You can incur business expenses on behalf of the corporation
5. The corporation may reimburse you for business expenses

I have seen in my 35 years experience many unfortunate occasions where these expenses were NOT properly accounted for, and a total loss of the deductions were the result.

Here’s the proper way to receive tax deductible business reimbursements fron your corporation and tax-free income. Submit a detailed expense report to your company for the reimbursement containing all the necessary elements. If the reimbursement is for auto expenses, travel, entertainment, or meals the expense report will need to be more specific, and I have a separate White Paper detailing the substantiation requirements of these IRS Section 274 expenses. Otherwise, the invoice that you paid on behalf of the corporation will suffice. By utilizing the expense reimbursement method, the corporation reimburses you for the expense item, and you receive the reimbursement tax-free! That all there is to it.

Another key point is when you operate as a corporation, you must pay attention to the separate legal status of the entity. Be certain to honor any agreement you have, even if you own 100% of the stock.

For further details on the IRS Section 274 expenses including meals, entertainment, travel expenses, and expenses relating to listed property under IRC Section 280F, please feel free to contact for my White Paper.