How should you consider only bonuses for tax purposes?

The correct approach to consider bonuses for tax purposes is to focus on only the bonuses received in the current tax year. This is because, for tax reporting, income is typically assessed in the tax year it is received. The Internal Revenue Service (IRS) requires taxpayers to report income in the year it is actually earned or received, which includes bonuses issued by the employer during that tax year.

Evaluating bonuses based on current receipts aligns with the principle of annual accounting for income recognition. This means that regardless of when the bonus might have been earned, it is the actual receipt of the bonus in the current tax year that affects tax liability. This practice ensures that taxpayers are only taxed on income that they have actually received, making it essential to distinguish between bonuses awarded in previous years and those received in the current tax year.