Here’s why this strategy can backfire:

1) Payroll taxes sting: A $100,000 W-2 bonus can cost you and your company over $15,000 in extra Medicare and Social Security taxes — far more than the IRS penalty you were trying to avoid.

2) It cuts your 199A deduction: Those wages lower your S-corp’s qualified business income, which directly reduces your 20% small business deduction. Less deduction = more tax.

For construction owners, the lesson is simple:

Before you write that year-end “bonus” check to yourself, talk with your tax advisor about smarter ways to handle estimated payments.

Ones that don’t eat into your profits.

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Disclaimer: This content is provided for educational purposes only and is not legal, tax, accounting, or financial advice. Every situation is unique, so consult your own attorney, CPA, or financial advisor before making decisions based on this information.