IRS ruling may make it easier to deduct bonus accruals

Description

Abstract: Many contractors may distribute safety and performance bonuses for the previous year’s work after year end. Until recently, they could deduct these “bonus accruals” on their tax return for the “performance year” (rather than the “payment year”) only if by the end of the performance year they specified exactly how much each eligible employee would receive. Now, under IRS Revenue Ruling 2011-29, bonus accruals may be more easily deductible in the year accrued. This may be beneficial because it allows contractors to accelerate the deduction, deferring tax. This article discusses details of the ruling, including rules that must be met to claim the deduction. A sidebar looks at some exceptions to the Revenue Ruling.