10/21/2026
The year-end bonus that feels most like tax planning is usually the one that costs the most.
Paying yourself a bonus as an S corporation owner moves money from distributions to wages, which adds Social Security tax up to the wage base and Medicare tax on the whole amount, against income that flows through to your return either way. Unless it serves another purpose, such as supporting reasonable compensation or unlocking a larger retirement plan contribution, it usually raises total tax rather than lowering it.
Employee bonuses are the opposite case, and the timing rules there are genuinely useful. If your business is on the accrual method, you can often fix a bonus pool by December 31, pay it in the first quarter, and take the deduction in the earlier year. That keeps the cash through the slowest weeks of winter while the deduction lands where it is worth more.
It only works if the liability is actually fixed. Revenue Ruling 2011-29 allows a fixed pool with individual amounts still unallocated, provided forfeitures from departing employees get reallocated among the people who remain. If the company keeps that money, the pool was never fixed and the deduction moves to next year.
One more piece people skip. Bonuses, the payroll taxes on them, and a Q4 estimated payment tend to land within a few weeks of each other, right as collections slow over the holidays. A deduction that sends you to a line of credit in February was not free.
The full post covers the cash versus accrual split, the four ways a bonus backfires, and how a bonus compares to a retirement contribution or an equipment purchase. Read it on the Harness Advisory Platform blog:
https://busadvisory.com/year-end-bonus-tax-planning-pay-now-or-in-q1/
