Reimbursements
When an employee (and this includes an owner-employee) needs to make purchases for the business; here are several ways to handle it.
Open an account
A very efficient way to shift most of the bookkeeping burden to someone else, is for the business to open an account with the vendor where the employee can charge it. Perhaps a service station where company vehicle is filled up with gasoline and has needed repairs done. Or a local restaurant where a monthly tab for business meals is kept. While the vendors will be primarily responsible for verifying the legitimacy of each item charged, the employer also needs to check the monthly billing for errors or slightly dishonest employee use.
Business credit cards
Rather than open accounts with vendors all over town, the employer may provide a credit card to each employee. Its use to be exclusively for legitimate business purchases. Each month the employer needs to check the monthly statements for any inappropriate use and to distribute the payment to the appropriate business expense accounts. The receipts from each purchase need to be retained by the employee and then remitted to the employer on some regular basis, perhaps monthly.
Direct Payment
Rather than allow the employee to use the business's credit card (and take on the risk of overcharging, inherent with that) a policy can be established to have the employee use his own credit card (preferably a separate card of his that is used solely for this business purpose) and remit the monthly statement (with the receipts) to be paid directly by the business. The employer distributes the payment to the appropriate business expense accounts.
Accountable Plan
Rather than mess with the formalities in the above examples establish a business policy to reimburse the employee by separate check for the business expenses and business mileage. Once a month, the employee neatly assemblies his receipts and chits and mileage log for presentation to the employer, who in turn reimburses the employee for the exact amount. The employer distributes the payment to the appropriate business expense accounts. The employee does not receive a Form 1099 and does not pick this reimbursement up as income.
Unaccountable Plan
Rather than mess with the formalities in the above examples establish a business policy to give the employee a flat amount deemed to be appropriate for the expected expenses paid for by the employee and business mileage driven by the employee. The employee does not substantiate the spending. If he does not spend it all, well that is money in his pocket.
The employer distributes the payment to the estimated, appropriate business expense accounts or charges it to employee reimbursements or charges it to wages it makes little difference to the employer. The employee will have the reimbursement added to his Form W-2 and FICA, Medicare etc is withheld. The employee does not get a tax deduction on his own Form 1040, rather the reimbursements are fully taxable to the employee. With this method, everyone loses. The employer incurs added payroll tax expense and the employee incurs more payroll taxes and income taxes.
Eat the cost
Rather than mess with any of the red tape above, the employee can simple eat the cost paying out of his own pocket and consider it a cost of being employed. No payroll taxes are due by the employer or employee, no additional income taxes are payable by the employee. The employer loses a legitimate tax deduction, but the employer "gains" by not having to pay out any cash. The employee loses the cash and maybe he is an unhappy employee for having to use his own money to support the business, just to be able to keep his job.