Share
Explore BrainMass

Tax issues for bonuses in a seasonal business

In January, Don and Steve each invested $ 100,000 of cash to form a corporation to conduct business as a retail golf equipment store. On January 5, they paid Bill, an attorney, to draft the corporate charter, file the necessary forms with the state, and write the bylaws.

They leased a building and began to acquire inventory, furniture, display equipment, and office equipment in February. They hired a sales staff and clerical personnel in March and conducted training sessions during the month.

They had a successful opening on April 1, and sales increased steadily during the summer months. The weather turned cold during October, and all local golf courses closed October 15, which resulted in a significant decline in sales. Don and Steve expect business to be very good during the Christmas season and then to decline during from January 1 to February 28.

The corporation accrued bonuses to Don and Steve on December 31, payable on April 15 of the following year. The corporation hired a bookkeeper during February, but he does not know much about taxation. Don and Steve have hired you as a tax consultant and have asked you to identify the tax issues they should consider.

Solution Preview

The bonus strategy is common for 'C' corporations, but accrued wages to corporate officers must be paid by March 15 for a December year end corporation. If paid by March 15, the bonus amounts can be accrued and included in wages in the prior year. With a calendar year corporation and the seasonal nature of the business, bonuses payable on March 15 might be hard to pay after two months of no activity. ...

Solution Summary

The 298 word solution presents an in-depth discussion of the bonus strategy proposed by the company for its officers, mostly explaining why it is a bad idea. Other suggestions about timing, year end and taxing options for the corporation are mentioned.

$2.19