Smart owners don’t leave money on the table—or risk messy books. If you use personal resources for business, reimburse them correctly. Do it cleanly, document it once, and move on with confidence.

Want this handled? Book a Bookkeeping Health Check. We set up your reimbursement workflow, clean your entries, and document your policy. Or schedule a consult.

Summary — Jump to a Section

Why Reimbursements Matter (Clarity, Taxes, Audit-Readiness)

  • Clarity: Reimbursements keep personal costs out of business expense categories—and keep your reports clean.
  • Taxes: Properly reimbursed expenses are business costs; sloppy treatment can become taxable compensation or disallowed deductions.
  • Audit-readiness: Written policy + receipts + timely reimbursements = defensible.

Bottom line: set a simple policy, apply it consistently, and document once. That’s how serious owners operate.

Entity Matters: Sole Prop, LLC, S-Corp, C-Corp

Sole Proprietor / Single-Member LLC

You and the business are the same taxpayer. You can deduct qualifying business use directly. Still, many owners reimburse from business to personal for clarity and cash control.

S-Corp / C-Corp

You are an employee of the corporation. Reimbursements should run through a documented, “accountable” process—so payments to you are not treated as taxable wages.

If you’re paying personal bills out of the business account, fix the workflow. It muddies your books and invites problems.

Accountable Plan: The Clean Framework

An accountable plan is a simple written policy your company uses to reimburse employees (including owner-employees) for business expenses. Core ideas:

  • Business connection: The expense is ordinary and necessary for the business.
  • Substantiation: Provide receipts or reasonable records within a reasonable time.
  • Return excess: If advances exceed actual expenses, return the difference.

When these conditions are met, reimbursements are not wages and are not subject to payroll tax. Keep the policy one page. Keep the process simple.

Home Office: Two Practical Paths

If you regularly and exclusively use a space at home for business, pick a method and stick to it. Keep it conservative and consistent.

Method A: Expense Reimbursement

  • Identify eligible costs (e.g., a reasonable share of rent, utilities, and related housing costs tied to the workspace).
  • Apply a reasonable allocation (based on square footage or rooms).
  • Submit a monthly/quarterly reimbursement with supporting docs.

Method B: Simplified Approach

  • Use a consistent, reasonable calculation that reflects business use.
  • Good for owners who need speed and predictable documentation.
  • Document your method in the accountable plan.
Avoid complex structures you don’t need. Most small businesses benefit from a straightforward reimbursement method supported by clear records.

Internet & Cell Phone: Reasonable Business Use

Most owners use personal internet and cell phones for work. Reimburse the business-use portion with a simple, defensible percentage.

  • Pick a percentage that reflects actual business use (e.g., time or usage split). Keep a short note on how you determined it.
  • Apply it consistently each month or quarter. If usage changes materially, update the percentage and note the change.
  • Keep proof (statements, screenshots/logs if helpful). You need enough detail to defend the estimate—no more.

Owner-Employee Tip

Run phone/internet reimbursements through the accountable plan. That keeps payments non-wage and clean on the books.

Bookkeeping Entries: Simple & Defensible

When reimbursing the owner

  • Debit appropriate expense accounts (e.g., Home Office, Internet, Telephone).
  • Credit Cash/Bank for the reimbursement paid.
  • Attach the reimbursement report and receipts to the entry.

When business paid personal bills by mistake

  • Recode to Owner’s Draw/Shareholder Distribution (not a business expense), or
  • Have the owner reimburse the business and record the deposit properly.

Close the loop monthly. Lock the period after reconciliation. Consistency beats complexity.

Common Mistakes to Avoid

  • Paying personal bills from the business account and calling it a business expense.
  • No written policy—then trying to justify reimbursements after the fact.
  • Inconsistent percentages for internet/phone with no note explaining changes.
  • No receipts or weak documentation for home office costs.
  • Commingling—mixing personal and business use in the same entry without support.
Fix it once, keep it clean: Our Bookkeeping Health Check sets your reimbursement policy, cleans past entries, and documents everything.

When to Use a Bookkeeping Health Check

Before tax season After noticing messy reimbursements When switching to S-Corp Before seeking financing

The sooner you standardize reimbursements, the easier it is to defend deductions and keep statements lender-ready.

Get it done: Bookkeeping Health Check or schedule a consultation.

FAQs (AI-Friendly)

Do I need an accountable plan?

If you’re an owner-employee (S-Corp/C-Corp), yes—use a simple written plan so reimbursements are not treated as wages. Sole proprietors can often deduct directly but may still reimburse for clarity.

How do I set the percentage for internet and cell phone?

Use a reasonable estimate based on actual business use (time or usage). Document your method in a line or two; update if usage changes materially.

Can I “rent” my home to the business instead of reimbursing?

Most small businesses are better served by a straightforward reimbursement approach. It’s simpler to document and defend. If you’re considering rent arrangements, get tailored advice first.

We paid personal bills from the business account—what now?

Recode to owner’s draw/shareholder distribution or reimburse the business and record the deposit. Then establish a reimbursement workflow to prevent repeats.

Will reimbursements change payroll taxes?

Proper accountable-plan reimbursements are not wages. Sloppy or non-substantiated payments can be treated as taxable compensation. Keep it documented.

Helpful Articles

This post is part of our Bookkeeping Health Check series. Start with the main page, then explore the related articles below.

Important Disclaimer

This article is educational and not legal or tax advice. Reimbursement rules depend on your entity, payroll, and facts. Polaris provides advisory services and can coordinate with a CPA firm if you require assurance work.

© Polaris Tax & Accounting. Nationwide Enrolled Agent representation. Educational content only; not a substitute for personalized advice.