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Many contractors running S-corps think, “I’ll just pay myself a big bonus at year-end, withhold taxes, and call it good.”Sounds smart, right? Not so fast.

Many contractors running S-corps think, “I’ll just pay myself a big bonus at year-end, withhold taxes, and call it good.”Sounds smart, right? Not so fast.

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.

Book a time to learn more: accountingsolutionsllp.com/appointment