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October 2023
October 2023 Q & A
QUESTION:
We plan to revive employee bonuses at our pre-Covid levels this year. A business owner friend said we can deduct the bonuses for 2023 tax purposes but not actually pay them until 2024. Is this true?
ANSWER:
Possibly. Your friend may be thinking of the "2-1/2 month rule." Under it, an employer may deduct bonuses earned during a tax year if they pay the bonuses within 2-1/2 months after the end of that year.But only accrual-basis taxpayers can benefit. Even if you are an accrual-basis taxpayer, you can't deduct the 2023 bonuses in 2024 unless you fix your obligation to pay in writing before year's end.
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