Recently IRS issued Revenue Ruling 2011-29 regarding the deduction of bonus even though the bonus would not be paid until the following year. This is applicable for businesses filing returns on accrual basis.
The revenue ruling allows an employer using an accrual method of accounting to take a deduction in the current year for a fixed amount of bonuses payable to a group of employees even though the employer does not know which of the employees will receive a bonus or the amount of any particular bonus until after the end of the taxable year. In other words, the entire amount of the bonus pool will be paid to members of the group of employees in the following year, but at the end of the current year the employer doesn’t yet know which particular employees will receive any bonus or how much.
If you have a business where you have employees and would like to offer some bonus to your employees for their extra-ordinary performance in 2011, you would be able to take advantage of this recent ruling and deduct the projected bonus amount in your tax return for 2011 even though it would not be paid by the end of the year.
This would be a great point to discuss with your tax consultant and see if you can use this opportunity.
One of the many retirement plan options available is that of Stock Bonus Plans. This plan is similar to another plan called Profit Sharing Plan. When you set up your retirement plan for your business you would learn about these various options possible.
This section is about a very interesting type of Stock Bonus Plan called Employee Stock Ownership Plan (ESOP) that offers special tax advantages to the company and great incentives to the employees.
There are research claims out there stating that companies where employees have a stake in the ownership of the company, even if through ESOP, perform much better than those that don’t have employee ownership. ESOP offers a way for owners to involve the employees into the ownership of the company. It also offers liquidity to the owners for their shares.
Most importantly, ESOP offer a very interesting tax planning opportunity for small and medium sized companies.
You need to get customized evaluation of your situation to see if an ESOP is a good option for you. If so, you would need to hire the services of a professional firm to help you with the set up. Although, it requires some thought and consideration, still you should not ignore it as it offers a wonderful tax planning opportunity and you are still able to retain the control of your company.