Are You Paying Employee Bonuses This Year?
Tuesday November 10, 2009
Many companies are not paying employee bonuses in this tough year. A recent article in the Atlanta Journal Constitution reports the results of a survey showing that only 31 percent of small businesses are planning to give bonuses, down from 44 percent last year.
Take a minute, please and vote in my "bonus" poll:
If you had a good year and you figure giving bonuses is a good way to reward employees and reduce your taxes, now is the time to make that decision. Some tax considerations for bonuses you might want to know about:
- Accounting method: Cash vs. Accrual. If your business is run on the cash accounting method, you must pay out the bonuses by the end of the year to get the tax benefit. But if you use accrual accounting, you can record the bonus in 2009 and then you can take up to March 15, 2010, to pay those bonuses, if your business has a December 31 year-end.
- S Corporations. Bonuses for shareholders and owners can be deducted, as long as they own their shares at the time the bonus is paid.
- C Corporations. Bonuses can only be deducted for shareholders/owners who have a 50 percent or higher ownership at the time the bonus is paid.
- Sole Proprietors, Partners, LLC Members. Bonuses to sole proprietors, partners, and limited liability company (LLCs) members are not deductible, because the owners/partners/members are considered by the IRS to be self-employed. This is one situation in which having a corporation and being an employee of that corporation might result in more tax deductions.
My employees work very hard throughout the year. It would be unfair not to give them a bonus. Granted they may be smaller this year due to lower profits, but they will still receive an end of the year bonus.
Although it has been a tough few years, our employees tell us how much their bonus tells them they are appreciated.
Bonuses will be far smaller this year, but everyone will receive one.