Businesses Planning to Pay Employees Year-end Bonuses Can Time Their Payments to Reduce Tax.

Businesses planning to pay employees year-end bonuses can time their payments to reduce tax. For example, if your business operates on the cash basis, you must deduct bonuses in the year they’re paid. So you could pay bonuses either in late 2023 or early 2024, whichever makes the most tax sense. Accrual-basis businesses must pay bonuses within 2½ months after the end of the tax year if they want to claim the deduction that year. Otherwise, bonuses may be considered deferred compensation and, thus, aren’t deductible. If your business would rather deduct bonuses in 2024, look into changing your bonus plans and re-setting the payout date before the end of 2023. Contact us for help.