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Be Careful When Giving Yourself Bonuses

Whoa, there, big spender: Make sure your big bonus is kosher with the IRS.
December 31, 2004
URL: http://www.entrepreneur.com/article/48262

When the profits are flowing in, it's often tempting to give yourself a nice, big bonus at the end of the quarter. But you'd better keep your greed at bay if you're organized as a regular corporation: The IRS is going after those business owners who pay themselves too much.

To decide whether compensation is reasonable, the IRS looks at a number of factors. These include the nature and size of the business, the nature and scope of the work the owner does at the company, the amount of time required for the services, and any special qualifications the owner has. Industry surveys and third-party studies help determine what is considered reasonable compensation for companies in the industry.