CHAPTER 7Employee Compensation: Salary, Wages, and Employee Benefits
As the economy emerges from the effects of the pandemic, the number one concern for many small businesses is finding and retaining employees. The tight labor market has required many businesses to change their compensation packages by increasing wages and offering a variety of benefits. Business considerations, such as a company's budget, drive decisions on pay and benefits. But the tax implications of what is given to employees should not be ignored.
If you are an employee of someone else's business, you do not pay compensation to another individual. You can skip most of this chapter and go on to look at other deductible expenses. However, you might want to review the areas covered to understand your employer's burdens and responsibilities for the wages and benefits paid to you. You may also be interested in a couple of tax credits to which you may be entitled by virtue of working.
If you are the owner of a sole proprietorship, partnership, or limited liability company, you are not an employee and cannot receive employee compensation. Money you take out of your business is a “draw,” but it is not a deductible expense ...
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