Getting bonuses is a tremendous event. Unfortunately, they are taxable. As a business owner, however, you can deduct bonuses paid.
Any income that you receive in a year will always be considered when making tax deductions. It does not matter why you received the money. This includes annual or semi annual bonuses you may acquire. With any bonus you receive from employers, tax money will and should be withheld. While it may seem unnecessary, these payroll deductions for bonuses are both necessary and important. If your employer does not withhold taxes from your bonuses, you are more likely to have to pay for that mistake later. Always insist on payroll deductions when you receive bonuses.
As with other benefits, bonuses are taxed. Benefits such as holiday pay, allowances and other special opportunities are still considered income and are taxed as though they are. Any additional pay you receive is income. This includes overtime pay. If you do not pay for these taxes upfront when you receive the money, you will pay when tax time comes around. While it may seem inconvenient at the time, if any errors are made, and your forecasted earnings for the year are thrown off, you are certainly entitled to a refund of those lost wages at tax time.
It is important to take into account any gifts you received as bonuses. If they are worth large amounts, and the buyer deducts them, you should be claiming them as well. Many sign-on bonuses or advances may not be taxed. If you are aware of this ahead of time, it is possible to avoid paying at the end of the year by simply requesting that your employer tax these items ahead of time.
For employers, bonuses are a tax deductible expense. At the end of the year, depending on what time during the tax year that the bonus was given, they are considered deductible for the current or next year. If an employer gives a deduction within the last two months of the year, they are eligible for what is referred to as an accelerated deduction. These deductions can make for significant contribution to an employer¡¯s tax return.
While it may seem trite and unfair to some to tax bonuses, it is the law. It is usually much more convenient to have the bonus taxed before it is given to you. This way, you do not have to worry about being stuck with a large amount of tax due when April rolls around.
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