With tax laws continuously changing, business owners may find it difficult to know what expenses they can claim at the end of the year. Even more, they may not remember what funds they are supposed to claim to avoid incurring penalties and fines. One of the most confusing aspects of filing taxes as a small business owner involves knowing whether or not to claim bonuses as a business expense. They can appreciate why it may be necessary for them to declare the bonuses they pay to employees and what qualifications call for them to include these funds on their returns. 

Services Vs. Gifts

Bonuses can be claimed on a business owner's return if these amounts were paid for services rather than as a gift. The employees must have earned their bonuses, such as through meeting a sales quota or recouping lost accounts for the company. The amount cannot be claimed if it was given as a gift, such as an annual Christmas bonus. As long as the money was given in exchange for services that the employee provided for the owner, it can be included when the business owner files taxes.

Bonuses Paid within Tax Year

In addition to the money being paid out for services, the bonus also must be paid out within that same tax year. If the cash was paid out the year prior or after the turn of the tax year, the employer, in many instances, cannot claim it on his or her returns. However, an employer who utilizes the accrual method for paying taxes may be able to claim the bonus if it was paid out within two and a half months after the start of the new tax year. This option typically is only available to accrual taxpayers.

Bonuses Paid to Non-Relatives

If the bonus was paid to an employee who is not related to the business owner, the bonus may need to be claimed on the return. Many owners have relatives working for them, which is perfectly acceptable and not illegal at all. However, if an owner pays bonuses to his or her relatives, those family workers must declare the bonus as income in order for the employer to likewise be able to claim the bonus on his or her return.

The tax laws continue to change each year, making it difficult for business owners to know for sure what to include on their returns. They can know for sure if they can claim bonuses paid to workers if they remember these current qualifications that pertain to how bonuses are earned by employees.