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Expense Reimbursement Forms

#23 on Lee’s formalities checklist is “Has your LLC adopted an expense account form for official company use that meets IRS guidelines?”

When the company is reimbursing you or any employee, the expense is deductible to the company and the reimbursement is not income to the employee.  The payment doesn’t appear on the employee’s W2.  But, you do need to document and justify the expense.

The IRS doesn’t have specific guidelines on what should and should not be on an expense form, but they do want to see that whatever you are claiming was ordinary and necessary for your business, and that there were no LUQs (large unusual or questionable amounts).  So your form should include a date, description, amount, and reason for each expense.

When I worked for the big oil companies as a geologist, they had a specific form that you had to fill out every time you wanted to be reimbursed for any expense you put out on behalf of the company.  In my little company, we don’t have a specific form, but we do have a “business practice.”

I carefully keep all receipts when I travel on the road or buy anything for the company.  I put them all in an envelope – one envelope for each trip.  Ben Rucker, the accountant/former IRS special auditor in our office, says you should not just keep the original flimsy receipts in paper copy, but scan them.  Scan and trash.  But old habits die hard. I still keep the original receipts in an envelope and the receipts have been ok when I have been audited, but I agree that the receipts can fade and not be legible.   I have kept them in a cool dry place, but I am starting to scan them as well.

I summarize all of the travel receipts by day on a piece of paper with date, purpose, and amount.  Then the secretary matches all the receipts up with the paper, gets info from the credit card statements, and adds everything up to reimburse me.  It’s not an official form, but it is the same routine every time.  The IRS likes to see a consistent business practice.

Each expense needs to be justifiable for the company to deduct it from its taxes.  It has to be ordinary for the type of business you are in, and it has to be necessary to conduct business.  There is a lot of leeway there.  For example, your hotel could be the Ritz or the Motel 6, and the IRS pretty much needs to honor your decision as to what was necessary for you.  I stay in the nicer hotels, and can justify it for security reasons.  I have had two friends murdered on the road, both in lower end hotels.  But the IRS probably won’t even bring up my choice of hotels.  “Ordinary” and “necessary” are the two key words you have to know and justify, which is usually pretty easy.

  1. If your LLC is for an SDIRA and you are the manager, can the LLC reimburse you for miscellaneous small expenses, if the receipts are properly maintained. Or is this a red flag for a prohibited transaction?

    • Ray,
      Having yourself as the manager of an LLC funded by your self-directed IRA is a red flag. That is the same as if you made yourself the trustee of your IRA, which is prohibited.

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