Reimburse your San Diego home office before the last 2026 payroll

How an S corp accountable plan works, and why December 31 matters

An accountable plan is a written policy saying the company will pay employees back for business costs they covered personally.

It has to require a business connection, substantiation within a reasonable period, and the return of any excess. The IRS safe harbor treats substantiation within 60 days and the return of excess within 120 days of the expense as reasonable.

Meet those tests and the payment stays off your W-2 and off your payroll taxes, while the company still deducts it. Miss them and the same payment becomes wages. That’s the whole game.

Why this matters more than it used to: an employee can no longer deduct these costs personally on a federal return. The 2025 law made permanent the suspension of all miscellaneous itemized deductions subject to the 2% floor, including unreimbursed employee expenses. You are an employee of your own S corp. If the company doesn’t reimburse you, nobody deducts it.

One thing that trips people up every year: the reimbursement does not have to run through payroll. It isn’t wages. You can pay it by ordinary transfer on December 29 even if your final payroll run was December 15. What it can’t do is sit in a journal entry while the cash stays put. If your S corp is on the accrual method, accruing a reimbursement to yourself and paying it in January still lands the deduction in 2027, because you and your company are related parties.

What San Diego owner-employees can reimburse for 2026

Three categories cover almost every owner we work with.

The home office. Measure the room, divide by the square footage of the home, and apply that percentage to the shared costs of the house for the year: electricity and gas, water, trash, homeowners or renters insurance, HOA dues, and general repairs. The room has to be used regularly and exclusively for the business, and it has to be there for the company’s benefit, which is usually satisfied when the company gives you no other office. A laptop on the kitchen island doesn’t qualify.

Skip the $5 per square foot shortcut. That simplified method belongs to people claiming a home office on Schedule C. A reimbursement has to be built on real costs you can show.

Mileage. 2026 is an unusual year for this. The business standard mileage rate was 72.5 cents per mile from January 1 through June 30, and 76 cents per mile from July 1 through December 31. The IRS made the midyear change after fuel prices rose, the first such adjustment since 2022. Split your log at June 30 and run the two halves separately. Using the January rate for the whole year quietly costs you money.

Commuting doesn’t count. But when your qualifying home office is your principal place of business, the drive from your house to a client in Kearny Mesa or Sorrento Valley is a business mile.

Phone and internet. Reimburse a reasonable business percentage of the monthly bill rather than the whole thing, unless the line is genuinely business only.

What this is worth: an example

Say you run a two-person marketing S corp from your house in Scripps Ranch. All the inputs below are examples, not averages. Your numbers will differ.

Item	Inputs (example)	2026 reimbursement
Home office share	180 sq ft office in an 1,800 sq ft home = 10% of $8,000 in utilities, insurance, water, and repairs	$800.00
Internet	$900 a year, 60% business use	$540.00
Cell phone	$90 a month, 70% business use	$756.00
Mileage, Jan 1 to Jun 30	1,900 miles at 72.5 cents	$1,377.50
Mileage, Jul 1 to Dec 31	2,300 miles at 76 cents	$1,748.00
Total paid to you, tax free		$5,221.50

Running all 4,200 miles at the January rate would have produced $3,045 instead of $3,125.50. That’s $80.50 left on the table for nothing.

What does the $5,221.50 save? At a 24% federal bracket and a 9.3% California rate, assume the 20% qualified business income deduction applies, so the reimbursement reduces federal taxable income by about $4,177 rather than the full amount. That’s roughly $1,003 federal, about $486 California, and about $78 off the company’s California franchise tax, for a total near $1,566. Your bracket, your California rate, and whether the QBI deduction applies to you will move that number.

California rules that change the answer here

This is where San Diego owners have more at stake than owners in most states.

First, reimbursing yourself isn’t optional generosity. Labor Code section 2802 requires every California employer to indemnify employees for all necessary expenditures incurred in direct consequence of their duties. In Cochran v. Schwan’s Home Service, the Court of Appeal held that when an employer requires an employee to use a personal cell phone for work, it must pay a reasonable percentage of the phone bill, even if the plan is unlimited and the employee paid nothing extra. You are the employer and the employee. Pay the percentage.

Second, people assume California softens the blow. Federal law suspended miscellaneous itemized deductions subject to the 2 percent floor, and California does not conform. That’s true for a regular employee. It’s much weaker for you. A deduction for unreimbursed business expenses isn’t allowable where the employee was entitled to reimbursement and didn’t claim it, and as the owner you’re always entitled. Don’t plan on the state deduction as a backup.

Third, the reimbursement shrinks the company’s California bill too. California taxes every S corporation with California source income at 1.5%, with an $800 minimum franchise tax due the first quarter of each accounting period. Every dollar of real expense you move onto the company books reduces that 1.5%, as long as you’re above the $800 floor.

And if your business address is your house inside city limits, the city wants to know. The City Treasurer’s Business Tax FAQ answers the question “Do I need a Business Tax Certificate if I work out of my home?” with yes: businesses operated from the home also require a Business Tax Certificate. Each city has its own business tax requirement, and you need a certificate from the jurisdiction where business is conducted.

Your December checklist

Week of December 7: Pull your mileage log and split the miles at June 30.
Week of December 14: Add up twelve months of home costs and confirm your square footage percentage.
By December 23: Put it all on one expense report with receipts and a one-line business purpose for each category, and sign it.
By December 31, 2026, a Thursday: Transfer the money from the business account to your personal account. Use a memo like “accountable plan reimbursement.”
January: Make sure your bookkeeper codes it to utilities, auto, and telephone, not to owner draws.

If you don’t have a written accountable plan yet, adopt one before you pay. The regulation doesn’t require the plan to be written, but a written plan adopted before reimbursements start is the best evidence those rules existed.

When this isn’t worth doing

If your LLC hasn’t elected S corp status, stop. You deduct these costs directly on Schedule C, and reimbursing yourself is just moving money between your own pockets.

If the company had a loss for 2026, the deduction may not help this year, and you may be better off looking at your basis before you move cash.

If your reimbursable total is a few hundred dollars, the honest answer is that the mileage is worth claiming and an elaborate utility spreadsheet isn’t. Below roughly $1,500 a year, keep it simple: mileage, phone, and nothing else.

Two more traps. Reimbursing mortgage interest and property tax is possible, but you then have to reduce the same amounts on your Schedule A, so the benefit is smaller than it looks, and we usually leave them out. And a flat $500 “office allowance” with no receipts is a non-accountable plan, which means taxable wages and payroll tax on every dollar.

Frequently asked questions

Does an accountable plan reimbursement show up on my W-2?

No. A payment that meets the accountable plan rules is excluded from wages, so it doesn’t appear as taxable income on your W-2 or get hit with payroll taxes.

Can I write one check on December 31 for the whole year?

You can, and plenty of owners do. But the 60-day substantiation window is the IRS safe harbor for a reasonable period, so a December report covering last January sits outside it. The clean fix is to reimburse quarterly starting in 2027.

Do I need a City of San Diego Business Tax Certificate if my office is a spare bedroom?

Yes, if your business operates inside city limits. The city’s Business Tax page says all businesses operating in the City of San Diego need a Business Tax Certificate, including home-based businesses, self-employed individuals, and independent contractors.

Which mileage rate do I use for 2026?

Both. 72.5 cents for miles driven January 1 through June 30, and 76 cents for miles driven July 1 through December 31. Keep the log split by date.

Can I reimburse mileage and my actual car repairs?

No. The standard mileage rate already covers gas, insurance, repairs, and depreciation. Pick one method and stay with it for the year.

Talk with Your Personal Back Office

We set up accountable plans for San Diego S corp owners, calculate the home office percentage and the split-rate mileage, and make sure the payment lands in the right year and the right account. If you want it handled before your last 2026 payroll run, now is the week to call. See our tax strategy and bookkeeping services.

Call 858-293-1984 or reach us through the contact page to book a free review of where your S corp stands for 2026.

This article reflects federal and California rules as of November 2026. Talk to a tax professional about your situation.