I'm just a girl...

I've never heard of any way to do it - which is why I really wish they'd stop giving them to me at the office. Heck, I'd rather have a new piece of equipment I can use at the office and home then being told they're spending X on Bonuses and see about half it it for "real".

And how exactly am I supposed to explain to the IRS where that large amount of cash disappeared to? If I don't have a receipt to prove what I spent it on, it will look like I took it for myself and I'll have to pay income tax on it out of my own pocket.

If the employer is giving the employee money, it's taxable as compensation/wages. It doesn't matter if you call it normal wages, bonuses, incentives, etc. Sorry.

Ok, I think have have 3 good ideas but I am not an accountant. So check with a real accountant and please let me know if it turns out that I'm an idiot and these ideas sux.

1. Only way giving them a piece of equipment would work is if it was technically never given to them. If, for example, the bonus comes in the form of a laptop worth $600 taxes are owed on it the same as if it was $600 cash. But if the employee was assigned a laptop and given permission to use it for personal stuff as well (not that I would recommend anyone do that) and made to give it back when their employment contract was terminated you're into a gray area where you can avoid paying taxes. Happens very frequently with cell phones but IRS has been continually cracking down on doing it with corporate cars and jets that were clearly being used as a form of compensation with incremental costs and benefits but not being claimed as income. So you do have to be able to make a good case as to how it's a piece of business equipment being used primarily for business purposes, that it belongs to the company and not the employee, and have a backup justification of how personal use of the equipment is secondary and doesn't cost the company anything if they press you on it. I think there are several nice things your employees would like that could work like this and they become golden handcuffs (ex: "There's another dance studio opening up near my house but if I quit I have to give my iPhone back."). Instead of a 1-time cash bonus you can loan them a piece of equipment, have them thank you for saving them the taxes, save taxes yourself, and get your hooks into them all in one brilliant move ;)

2. "Business" lunches, snacks, retreats are an old standard as a way to give little perks without additional tax burden and can be written off as business expenses. Not sure if you can offer Per Diem to employees that aren't traveling but worth looking into.

3. I think reimbursements for business/travel expenses incurred by employees can be counted as business expenses also. IRS totally watches for people just buying clothes for personal use but there's gotta be some legit "business equipment" that your employees would enjoy purchasing a top-of-the-line product for and reimbursements are fairly easy to put on the books as long as you get proper receipts for them.

Not legally. But if you are trying to achieve giving them, say, $100 without them seeing the tax, then you could pay them (i.e., $125 -- including the related taxes) whatever would net them $100.00.