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Handling End of the Year Bonuses and Taxes

With holiday shopping starting up, most people wouldn’t mind having a little extra money on their hands. In fact, many people rely on a Christmas bonus to help them get through the end of the year.

Whether you call it an end-of-year bonus, a Christmas bonus, or a holiday bonus, the concept remains the same. As the year comes to a close, many businesses give their workers a little something extra. It acts as a great incentive for employees to finish strong, and it shows your thanks for their work the past year.

How you do bonuses is up to you. They can tie directly to an evaluation or the person’s performance. If they’re in sales, it could be commission based. If you plan to give everyone the same amount, the bonus could be based on how the company does.

Or you can simply look at your books and see what you can afford.

Just make sure to set the right expectations for bonuses and be fair in giving them out, and you should be alright in the eyes of your employees.

Of course, like all business decisions, you’ll also want to make sure you’re alright in the eyes of the IRS.

Bonuses and Taxes

Bonuses aren’t just good for employees. They can be a nice additional tax deduction for the business itself. Just remember, it’s still taxable from the employee side. The general FICA taxes, as well as state and federal taxes need to be withheld.

Can I Give Myself a Tax-Deductible Bonus?

Depending on your company setup, you may be able to give yourself a bonus and still deduct it from your taxes. For corporations, bonuses can be given to owners and shareholders, and you can deduct them accordingly.

This, however, does not work for sole proprietors, partnerships, or LLCs since you’re considered self-employed as far as the IRS is concerned.

Alternatives to Cash Bonuses

Many companies have turned to non-monetary bonuses at the end of the year for a variety of reasons. Sometimes it’s easier/cheaper. Sometimes it feels more genuine.

It can also be a nice way to get around taxes. Whether it’s a gift, a party, or something else, a non-cash bonus keeps employees from having to pay taxes on what they receive while still giving your business a deduction.

Having trouble keeping on top of your year-end bonuses? Maybe you’re unsatisfied with your current payroll company. If you’re in need of a quality payroll service company in Springfield, Ohio, LWS has you covered.

Contact us today!

Posted by admin | in Accounting, Business Tax