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Subtracting Holiday Bonuses From Company Accounts

As the holiday season comes around, businesses are providing year-end bonuses or holiday benefits to employees as an additional reward for hard work. The problem that many small businesses and companies face is accounting for the additional expense. Recognizing the appropriate accounting method is the key to providing bonuses and benefits during the holiday season.

Cash Bonus Accounting

The process of accounting for a cash bonus is relatively simple. Business owners or the appropriate department within a company must determine the bonus amount for each employee and record the bonus in a similar method as regular income.

Payroll departments or an outsourced service are informed of the bonus and make appropriate calculations for withheld amounts. The paycheck is then given to the employee through direct deposit or a check, depending on the normal method of payment.

The company accounting books will reflect the bonuses provided to employees as a company expense along with regular paychecks. Since the process of providing a cash bonus is similar to a regular paycheck, accounting for the special pay is not a complicated process.

Non-Cash Bonus Accounting

Although a cash reward or bonus is commonly provided to employees, a non-cash bonus is another option for business owners. Non-cash bonuses include the expenses of a company party, holiday hams given to employees or similar gifts that come from the company during the holiday season. Accounting for a non-cash bonus is a little more challenging because it is not subject to the same tax laws.

The appropriate way to add non-cash bonuses during the holiday season is through “de minimis” on IRS tax forms. It is included in the costs and expenses of a company, but employees are not taxed for the gift.

Any non-cash bonuses provided to employees are accounted as a company expense or liability. As a result, the business will pay less in taxes due to the increased expense from the holiday bonus.

Although the non-cash bonus is added as an expense to the company, employers need to use caution when providing de minimis bonuses. The IRS has limitations on the number and amount of rewards employers can offer. A large number of non-cash bonuses might result in paying more in taxes.

The holiday season is a time to offer bonuses and special perks to employees. The bonus is a motivation to continue working hard and is not difficult to add to company accounts. Bonuses for the holiday season are added to the company books as an expense, but the taxation requirements will vary based on the type of holiday benefit offered to employees.

Here at Crowley & Halloran CPA’s, our consultants would be happy to help you plan and manage your business budget. Click here to request a proposal.

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