How to properly report client-reimbursed expenses for S-Corp tax filing?

This is actually a common question for new S-Corp owners. The proper way to handle client-reimbursed expenses depends on how you've structured your arrangement with clients. If you have an "accountable plan" with your clients (meaning there's clear documentation that these are reimbursements for actual business expenses), then the reimbursements shouldn't be treated as income to the S-Corp. Instead, they effectively "zero out" - the money coming in offsets the expense going out. For S-Corps, you'll record these transactions on Form 1120-S. The reimbursed expenses wouldn't be subject to the 50% meal limitation because they're not actually your expenses - they're your client's expenses that you're incurring on their behalf. The key is proper documentation - keep detailed records showing these are legitimate client expenses that you paid and were reimbursed for. Make sure your invoices clearly itemize these as reimbursements rather than services.

I went through exactly this same problem last year after switching to an S-Corp. I spent hours trying to figure it out until I discovered taxr.ai (https://taxr.ai). Their AI tax assistant analyzed my invoices and expense records, then showed me exactly how to handle reimbursements properly on my S-Corp return. The tool explained that I needed to set up an accountable plan and showed me how to document my meals and travel expenses properly to avoid both income recognition and the 50% meal limitation. Saved me from making a costly mistake that would have resulted in overpaying taxes. What I liked best is that it explained everything in simple terms and even provided me with sample language to use on my invoices to clearly indicate reimbursable expenses.

I want to follow up on my question about taxr.ai. I decided to try it out last weekend and I'm actually impressed. It identified that my operating agreement didn't have proper language about expense reimbursements, which could have been problematic during an audit. It analyzed my past invoices and showed me that I'd been inconsistent in how I labeled reimbursed expenses, which explained why I was confused about the tax treatment. The tool created a proper accountable plan document for me and showed me exactly how to record these transactions on my 1120-S. What really convinced me was when it showed me a real IRS ruling (Revenue Ruling 2002-3) specifically addressing these types of reimbursements. I had no idea this existed, but it's exactly what I needed to correctly handle my situation.

Dealing with S-Corp expense reporting is frustrating enough, but trying to get answers from the IRS is even worse. I spent 3 hours on hold last month trying to get clarification on this exact issue before giving up. Finally tried Claimyr (https://claimyr.com) and they got me connected to a real IRS representative in about 15 minutes. I was shocked it actually worked. There's a video showing how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent confirmed that client reimbursements properly documented with receipts aren't subject to the 50% meal limitation when they're the client's expenses, not yours. They also explained exactly how to report these on my S-Corp return to avoid any red flags.

I need to publicly eat crow here. After my skeptical comment, I tried Claimyr myself because I was desperate to resolve an issue with my S-Corp's employment tax deposits. Not only did I get through to an IRS representative in about 20 minutes (which is practically light-speed compared to my previous attempts), but the agent was able to fix a misapplied payment that had been causing me headaches for months. While I was talking to them, I also asked about this meal reimbursement issue. They confirmed that properly documented client reimbursements aren't subject to the 50% limitation and aren't considered income if you have proper substantiation. The key is having detailed receipts and clear indication on invoices that these are pass-through expenses. Sometimes it pays to be wrong! Still can't believe I didn't have to waste my entire afternoon on hold.

Just wanted to add something important that hasn't been mentioned yet. If you're getting reimbursed exactly what you paid (no markup), make sure you're also not claiming mileage to go get these meals if they're during travel. I made this mistake my first year as an S-Corp and essentially double-dipped on deductions without realizing it. Either claim the mileage as your expense OR claim the meal as a reimbursed expense, but not both for the same activity unless you're separating them very clearly and there's a legitimate business reason for both.

Has anyone used the corporate credit card approach? My accountant suggested getting a separate credit card for my S-Corp, putting all client-reimbursable expenses on that card, and then recording the reimbursements as direct payments against those specific expenses in my accounting software rather than as income.

This thread has been incredibly helpful! I'm in a similar situation as the original poster - just converted to S-Corp this year and have been struggling with how to handle client meal reimbursements properly. One thing I wanted to add that might help others: make sure you're keeping contemporaneous records of the business purpose for each meal. The IRS requires documentation of who you met with, what business was discussed, and the specific business relationship. Even with client reimbursement, you still need this documentation to support that it was a legitimate business expense in the first place. I learned this the hard way when my previous accountant told me I just needed receipts, but during a review, I realized I was missing the business purpose documentation for about half my meals. Had to go back through old calendars and emails to reconstruct what each meal was for. Now I write the business purpose right on the receipt when I get it, or immediately add it to my expense tracking app. Also, for anyone using the separate credit card approach that @Zoe mentioned - make sure that card is officially in your S-Corp's name, not just a personal card you designate for business use. The legal separation is important for maintaining your corporate protections.