#TechTips: Accountable Plans get “-iffied”

By Jonathan Rivlin

Have you ever worked up a client’s QB file (the modern equivalent to the “bag of receipts”) and prepared their Schedule C and 1040 only for the client to suddenly remember all the other business expenses that they paid out of pocket? Nothing like seeing the tax due line to jog a weary sole proprietor’s memory.

We, of course, approach all such matters with a dose of professional skepticism; show me the receipts we say. Blank stares we receive back. I can get you bank statements they eventually say. That’s not enough we reply; we need both the statement and the receipt. But why, they say. Because the IRS said so – stop asking and just do it! (I’ve been doing this way too long.)

Contrary to what a revenue agent would have us believe, the clients aren’t being duplicitous; they’re just busy running their businesses. Over the years, we’ve coached our clients on what receipts to save, but it’s still a difficult matter of sorting and summarizing (and charging them for this). It’s soul-crushing work.

And now into that let’s talk mileage. Yes, client, I know your mileage is similar to last year, but I need you to tell me the actual numbers. No, I can’t just use last year’s. Yes client, but the numbers you just stated both end in “000”, that seems like a convenient coincidence. No client, I can’t just tell you what the number is. Sighhh. Yes, client, you also need to tell me the total miles driven; I need both total miles and total business miles. Yes, I told you this, every single year since we started working together. No client, it’s not a new thing…(I’ve been doing this way too long.)

Suffer no more! Better living through technology!

This post will focus on an app called “Expensify”.

Expensify syncs with both Bill.com and Xero (and QBO).

Like Bill.com you can set up multiple users and limit their permissions by role. Employees take pictures of their receipts on the fly using the Expensify smartphone app. Mileage is tracked automatically through the app as well! For those clients that reimburse their employees for expenses, Expensify sends all this data to Bill.com for payment. For those clients that provide their employees with a corporate card, the expenses flow straight into Xero.

Tech Tips has a client where employee expense reimbursements was a large part of their operations. Managing the paperwork, sorting, summarizing, cutting checks was, putting it mildly, laborious. The employees hated keeping all the paper receipts. The managers hated going through and approving all the reports. And they all hated us for taking so much time to triple check everything and prepare the reimbursement payments.

Excel helped, partially. But, Expensify coupled with Bill.com and Xero took a beast of an operation and shrunk it down to a 5-minute breeze.

Now, we are freed up to focus on the numbers themselves and their meaning to the overall business. And, we can breathe a little easier knowing that this framework provides an additional formality and internal control to a small business that would otherwise not have adequate internal control.

For me, the aha moment came when I wanted to spot check some of the reports in Expensify. There they were, perfect images of receipts, neatly organized and linked to their respective reports – which themselves were marked as reviewed/approved by the client’s managers; and then following this thread to Xero clinched the deal.

Now, you may say that your clients don’t need this particular bell and whistle. But, they do. Even for those clients that are shareholder/single employees of S Corps with simple ledgers. The Expensify workflow frees up their need to save all that paper, and formalizes the reimbursement process, and makes accounting so much easier. Using this setup; Expensify – Bill.com – Xero should make the dreaded hunt for out of pocket expenses a thing of the past.

One caveat with all this. Expensify uses its own terminology. We create “policies” in our client’s profiles on the app. This is not the same as an “Accountable Plan” under the IRC. You still need to have your client create (download a template for free from the interweb) such a plan document.

By this point in our cycle through the cloud, I hope that you’re starting to get more comfortable with and, dare I say, excited about this new tech.

We’ve had a rough time as practitioners as regulation has gotten stricter over the past several decades. It seems now that the technology has finally given us the tools we need to make our lives and our client’s businesses better.

We’d like to hear from you! Please submit your own tech tips to us! We will award a free subscription to The Tax Book to the person who submits the best tip. Please submit your tips to this email address: techtips@msatp.org

Thanks, and catch you next time!