As 2026 gets underway, many AI and software companies are shifting from closing out last year to looking ahead. Teams are finishing budgets, setting hiring targets, and reviewing compensation after another year of rapid growth.
Bonus planning is one area that often gets overlooked. While bonuses are usually seen as ways to reward performance and keep employees, how and when they are set up can have big financial and tax effects. Tackling these issues early in the year gives companies more options and helps them avoid last-minute problems.
Why Bonus Planning Matters Earlier Than Most Companies Think
In many companies, bonus discussions don’t start until late in the year. By then, decisions are rushed, paperwork might be missing, and there are fewer tax planning options. Starting these talks earlier lets leaders:
- Align compensation plans with financial forecasts.
- Set clearer expectations for employees.
- Avoid last-minute decisions that affect tax treatment.
- Build bonus programs that scale with the business.
For fast-growing AI and software companies, especially those hiring quickly or getting ready to raise funds, early planning helps both leaders and employees understand what to expect.
Bonus Strategy and Tax Planning Are Closely Linked
Bonuses are mainly meant to motivate and keep employees, but they also impact how and when expenses are counted for taxes. The main thing to focus on is clarity.
Bonus programs that are clearly set up, documented, and approved ahead of time are much easier to manage than those that are vague or flexible. If bonus terms aren’t clear, companies can run into problems with financial reports, taxes, and audits.
As 2026 approaches, tax authorities are still paying close attention to how companies set up and report compensation. When bonuses are paid can affect when expenses are deductible and how they impact taxable income.
Understanding the Core Rules Without Getting Technical
When planning, the key idea is whether a bonus obligation is considered fixed by the end of the year. Usually, a bonus can only be deducted in the year it’s earned if:
- The obligation is established by year-end.
- The amount is reasonably determinable.
- Payment is not contingent on future employment or approvals.
This is where many companies have issues. If bonus plans require employees to stay until the payout date, or need board approval after the year ends, they usually aren’t considered fixed. In these cases, the deduction is delayed until the bonus is paid.
Why the 2½-Month Rule Still Matters
One common planning tool is the 2½-month rule. This lets companies using accrual accounting deduct bonuses in the year they’re earned, as long as they’re paid within 2½ months after year-end.
But this rule only works if the bonus is clearly set up before year-end. If bonuses are still up in the air or need later approval, the deduction is delayed no matter when they’re paid. For growing companies, this timing can affect:
- Taxable income
- Cash flow planning
- Financial statement presentation
Knowing about this rule early in the year gives leaders more options and helps avoid surprises at year-end.
Board Approval and Documentation Matter More Than You Think
Another common problem is when bonus plans need board approval after the year ends. If approval comes too late, the bonus might not count as a fixed liability for the previous year. The best approach is to:
- Document bonus plans in advance
- Align approval timing with year-end deadlines
- Clearly define eligibility and payout terms
Clear documentation helps with transparency, improves internal controls, and reduces friction during audits or diligence reviews. With the continued implementation of provisions under the One Big Beautiful Bill Act (OBBA), the IRS has reinforced its focus on timing, documentation, and related-party rules. While OBBA didn’t change bonus tax rules, it did highlight the importance of:
- Properly fixing liabilities
- Following timing rules closely
- Avoiding informal or loosely documented compensation practices
For 2026, this means companies should address bonus structure early instead of waiting until the end of the year.
A Smarter Way to Approach Bonus Planning in 2026
As companies plan for the year, bonus planning should be part of the overall financial strategy. Good bonus programs usually involve close teamwork between leadership, HR, and finance to make sure the program includes:
- Clear eligibility and performance criteria
- Alignment with company goals and budgets
- Consistent approval and documentation processes
Taking care of these areas early helps lower risk, increase transparency, and support better decisions as the company grows.
Looking Ahead
The beginning of 2026 is a good time for AI and software companies to take a more thoughtful approach to compensation planning. By planning bonus structure, timing, and how they fit with financial goals ahead of time, companies can avoid last-minute problems and create programs that really help them grow.
If your company wants to better understand how compensation planning fits into your overall tax and financial strategy, now is a great time to start.
Authors: Yana Vaynshteyn | [email protected]; Eman Mercado | [email protected]; and Daniel Vukosa, CPA, Partner | [email protected]
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