Generally, employee bonuses are deductible in the year that they are paid. For instance, you must give out bonuses before January 1, 2024, to deduct those bonuses on your company’s
2023 return. However, there is a special rule for accrual-basis companies. In this case, the bonuses are currently deductible if they are paid within 2½ months of the close of the tax year.
If your company qualifies, determine bonus amounts before year-end. As a result, the bonuses can be deducted on the company’s 2023 tax return as long as they are paid by March 15, 2024. Keep detailed corporate minutes to support the deductions.
This special deduction rule does not apply to bonuses paid to majority shareholders of a C corporation or certain owners of an S corporation or a personal service corporation.
The bonuses are taxable to employees in the year in which they receive them. Thus, the employees benefit from tax deferral for a year even if the company claims a current deduction.