How May Payment of the Executive’s Bonus be Tax-Deductible by the Employer?
If the bonus is an ordinary and necessary business expense, paid or incurred in the taxable year while carrying on a trade or business.
Payment must also be made “in good faith as additional compensation for services rendered, and provided that the payment, when added to the stipulated salaries, does not exceed reasonable compensation for the services rendered.
Payment must be for services rendered and, therefore, bonuses to non-executive shareholders would be considered non-deductible dividends.