Paying LLC owners a bonus with minimal tax impact?

Is it possible to avoid additional tax burden by paying the owners of a LLC a incentive pay for staying or making a company profitable?

Would this reduce tax burden?

Or is it better to use the additional profit and instead of paying a bonus or incentive pay buying a tax deduction (car) for the owners?

Answer

Hey, that's a cool logo.

As far as minimizing tax in the pass-through entity, you're going to want to maximize your business expense deductions.

Payments to the active owners of an LLC are not a business deduction--it's a distribution of profits.

Therefore, find a way to make a deductible business expenditure that is also of benefit to the owners. I'm sure you can think of something.

For entities taxed like a corporation, salaries paid to employees (including a shareholder), are deductible, but of course, taxable to the employee (along with the corporation's portion of FICA/Medicare taxes).

You mentioned "incentive pay". In corporations, the IRS has limited the deductibility of salaries above $1 million. The only way to pay an employee (usually a CEO or other C-leve executive) more than $1 million per year and still take a business deduction is to make it "incentive based".

If this is your issue, then you have enough money to afford an attorney and accountant, which I would highly recommend.