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Small Business
Are bonuses best?
June 15, 2000: 12:44 p.m. ET

The consequences of paying a bonus to your employees could be too steep
By Jane Applegate
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NEW YORK (CNNfn) - Dear Jane: I would like to pay my employees a small, unexpected bonus for their efforts over the last six months. If it's less than $500, do I have to take out and report the taxes?

graphicYou should check with your accountant to be sure, but according to Bernard Kamoroff, author of "422 Tax Deductions for Businesses and Self-Employed Individuals," any bonus or award is subject to all payroll taxes. They are deductible like any wage paid by an employer. If you give a gift, the deduction is limited to $25 per recipient, per year.

Rather than cash, how about throwing a party or taking everyone out to a great dinner? A company or holiday party where all employees are invited is 100 percent deductible, according to Kamoroff.

You also might consider buying gift certificates to a favorite store, movie passes or tickets to a local amusement park. You would not be able to deduct more than $25 per person, but it might be a better morale booster than a bonus that has to be taxed.

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