Businesses planning to pay employees year-end bonuses can time their payments to reduce taxes. For example, if your business operates on a 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, consider changing your bonus plans and re-setting the payout date before the end of 2023. Contact our team for assistance.