I am one of the partners in a recently-formed LLC.  What is the process
for handling expense reports by employees?  For instance, three of us
in the company recently went on a business trip.  While some expenses
were paid for using the company credit card, many others were paid out
of pocket, and therefore the individuals need to be reimbursed using
expense reports.  When the employees submit them to the LLC, what does
the LLC need to do with them?  We haven't gone through a tax season
yet, which is one of the reasons we haven't had experience with this
yet.

Hi alexdp,

Simply, you have your choice between using an "Accountable Plan" and a
"Non-accountable Plan", and which one you choose will be important for
your employees at income tax time. Your employees should be
responsible for keeping accurate records (a simple Excel spreadsheet
would be fine) which they will submit to you on a regular basis (e.g.,
monthly).

Accountable Plan:
"A plan for reimbursing employees for expenses such as meals,
entertainment, travel, and transportation incurred for business
purposes on behalf of the employer. A plan is an accountable plan if
the employer requires the employee to account for all business
expenses and to return any excess reimbursements. For employees under
an accountable plan, reimbursements aren't entered on the tax return
as income and the expenses aren't deductible."
http://www.hrblock.com/taxes/fast_facts/glossary/glossary_detail.jsp?gloss_id=17

Accountable plan or non-accountable plan:
"Make sure you ask your employer if your company is using an
accountable plan or a non-accountable plan. Reimbursed payments under
a non-accountable plan are treated as income and the employee can
claim deductions for business expenses. The accountable plan advances
employees or reimburses employees for travel expenses. Payments to
employees under the accountable plan are not included in the
employees' gross income and are not reported on a W-2 form.
http://www.cpa2client.com/DCv2/article.asp?key=tbsacpa&article=42

An Accountable Plan is the Best Plan:
"An accountable plan for reporting and reimbursing expenses is simple,
keeps employees from paying income tax on reimbursements and
constitutes good management. Keep public confidence and avoid the
excess-benefit tax with an easy-to-implement policy."
http://www.kdv.com/nonprofit-articles/exp_reim.html

Reimbursing Employees' Expenses:
"Frequently it happens that employees pay some of your company's
expenses out of their own pocket, and then ask you for reimbursement.
This is often the case with automobile, travel, or meal and
entertainment expenses. How do you treat these expenses for tax
purposes?
The answer is that reimbursements made under an "accountable plan" are
deductible for your business, and are also excluded from the
employee's gross income for payroll tax purposes. If you are a sole
proprietor filing Schedule C, you would deduct these reimbursed
expenses in the Schedule C categories to which they pertain; for
example, reimbursed employee travel expenses would be added to your
own travel expenses on Line 24a; reimbursed meals would be reported on
Line 24b etc.
However, if the reimbursements are not made under an accountable plan,
you must include the reimbursements in the employee's wages on IRS
Form W-2. In that case, the employee must generally claim a
miscellaneous itemized deduction for the allowable business expenses
if he or she wants to get any tax benefits from them. You would treat
the reimbursements as part of the employee's compensation. If you are
a sole proprietor, you'd include the reimbursements on Line 26 of
Schedule C, "wages."
The catch is that you are required to withhold income taxes and
employment taxes on reimbursements made, or considered made, under a
nonaccountable plan because the reimbursements are included in the
employee's taxable wages. You'll also have to pay the employer's
portion of the payroll taxes on these amounts.
Clearly, reimbursing under an accountable plan is better for both you
and your employees, from a tax perspective..."
http://taxguide.completetax.com/text/Q13_2694.asp

ACCOUNTING

Handling Employee Reimbursements:
"If your company chooses an accountable plan, your workers must submit
detailed expense reports. Senso suggests that you distribute either an
Excel spreadsheet or a printed form, where employees can note their
spending and attach receipts and other documentation. She also
recommends that employees keep a travel diary to record detailed
information, such as private vehicle mileage, lodging, travel and
entertainment expenses. For example, under "entertainment," they
should record the date and time they take prospects to a restaurant,
the number of prospects and the purpose of the meal, including the
topics discussed."
http://www.wellsfargo.com/biz/bustips/tip/moneyreimburse.html

Sample of business software that is available:

Employee Expense Management:
http://www.wind2.com/products/employee_expense.asp

INCOME TAX

IRS Publication 463:
Employers. 
"If you are an employer and you reimburse employee business expenses, how
you treat this reimbursement on your employee?s Form W?2 depends in
part on whether you have an accountable plan. Reimbursements treated
as paid under an accountable plan, as explained next, are not reported
as pay. Reimbursements treated as paid under prononaccountable plans,
as explained later, are reported as pay. See Publication 15, Circular
E, Employer?s Tax Guide, for information on em- ployee pay."

Accountable Plans:
"To be an accountable plan, your employer?s reimbursement or allowance
arrangement must include all three of the following rules.
1) Your expenses must have a business connection ? that is, you must
have paid or incurred deductible expenses while performing services as
an employee of your
employer.
2) You must adequately account to your employer for these expenses
within a reasonable period of time.
3) You must return any excess reimbursereceives ment or allowance
within a reasonable period of time.

Nonaccountable Plans:
"A nonaccountable plan is a reimbursement or indepenexpense allowance
arrangement that does not meet one or more of the three rules listed
earlier under Accountable Plans. In addition, even if your employer
has an accountable plan, the following payments will be treated as
being paid under a nonaccountable plan:
1) Excess reimbursements you fail to return to your employer, and
2) Reimbursement of nondeductible expenses related to your employer?s
business. See Reimbursement of nondeductible expenses, earlier, under
Accountable Plans.
An arrangement that repays you for business expenses by reducing the
amount reported as your wages, salary, or other pay will be treated as
a nonaccountable plan. This is because you are entitled to receive the
full amount of your pay whether or not you have any business expenses.
http://www.irs.gov/pub/irs-pdf/p463.pdf

I hope this helps. If you have any questions, or if I misunderstood
your question, please post a clarification request before
closing/rating my answer and I'll be happy to reply.

Thank you,
hummer

Google Search Terms Used:

"accountable plan" glossary
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business expenses llc accounting

The rules for an LLC are no different from any other entity type (i.e.
corporation, partnership, sole proprietorship) with respect to expense
reimbursements.

Your company should reimburse all employees and partners for any
legitimate expenses incurred while traveling.  Typically, an expense
report is filled out and submitted for approval.  All receipts should
be attached to the expense report and retained in your accounts
payable files in case they are needed for audit purposes.