Can My Business Claim Employee Bonuses on Taxes?
Can a business owner claim a bonus given to an employee as a business expense? That answer to that question is maybe, according to Enrolled Agents in San Diego. It all depends on why the bonus was given out.
An Earned Bonus Is a Tax Deduction
If an employee earned his or her bonus, that money can be claimed as a business expense. For instance, an individual may have received $500 for meeting a sales goal or $1,000 for signing up the most new customers. However, if a bonus is given out as a gift, that money cannot be claimed as a business expense. For example, if an employer gave each employee $1,000 just because it’s Christmas, that would be a gift.
Timing Is Critical Too
To claim a bonus as a business expense on a tax return, it needs to be paid in that same tax year. However, companies that use the accrual method of accounting may be able to pay that bonus within 75 days after the end of the calendar year. Businesses generally need to seek approval to use the accrual method for their small businesses.
Be Careful with Family Members
It is important to point out that employees must claim the bonuses as income for the owner to also claim them as an expense. In some cases, employers will pay bonuses to family members who do not claim them as income. This could get both the business and the employee in trouble.
Should businesses claim bonuses on their tax returns? As long as the bonus was given for services rendered and in the same tax year as the return being filed, business owners should be able to claim them with no issue.
Make sure you’re playing by the rules with help from R.A. Michael and Associates. We’ve been helping taxpayers for over two decades with a wide range of IRS issues, from unpaid employment taxes to IRS collections. Call us today at (844) 780-1100 and schedule your free consultation.