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Summary: Deducting compensation on taxes refers to businesspersons deducting the money that they pay to employees as a business expense. Discover how anything that is given to an employee as a benefit or wage is deductible with help from a tax bookkeeper in this free video on tax deductions.
Ken Lewellyn is co-founder of Tennessee Business Services, Inc., a Tennessee bookkeeping, tax and consultant firm which provides bookkeeping, tax and business advisory services to...read more
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"Hi, we're here to talk about how to deduct compensation on your taxes. If you own a business and you have employees all the moneys that you pay them is deductible as a business expense. Whether it be salaries, benefits, bonuses, even things like if you give them a discount for company shirts or products or whatever. Anything that is given to the employee as a benefit or as a wage would be deductible. This includes paid holidays, sick pays, vacation days, time off, anything that they're paid for and that that you're paying for is deductible as an expense. If you're a sole proprietor you cannot deduct your own wages or your own benefits as an expense but you can still deduct those of your employees. And they would appear on your schedule C. If you're a corporation then you're; you are entitled legally to deduct your own compensation and benefits as an expense. This is one of the benefits of forming a corporation or an LLC. You don't deduct the actual expenses that you pay employees as compensation; those are shown in a separate section under business expenses. Things like mileage, reimbursement for meals, that sort of thing are not considered compensation rather they're considered business expenses and would be handled in a later section on a return."
eHow Article: How to Deduct Compensation on Taxes
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