This calculator is a simple example of the tax benefits afforded to employee stock ownership plans (ESOPs). Its purpose is to display what the potential tax benefits may be based on the three tax principles above. There are many ways to structure ESOP transactions that will affect these tax benefits. A full feasibility study will project the advantages tailored to your potential transaction. Your taxable income needs to be sufficient to permit 100% of the loan amortization payments to be deductible. If you do not have sufficient taxable income for this, then you are likely too small for an ESOP. If your EBITDA is below 1,500,000, you are likely too small for many transaction structures.
* Assumes financing over a 10-year period. This is reasonable for a seller to note. Bank financing is typically shorter. In any situation, financing is likely to have a stated term equal for a C corporation or S corporation
** Family stock account values are not increased for the share price due to company growth over the term of the loan. This is simply the family’s percentage of the stock value purchased by the ESOP. It also does not include any S corporation distribution accumulations in the account. Actual account values will vary.
*** As an example, we assume the seller doesn’t get this if the transaction requires revoking S Status for 5 years to do a 1042 transaction. If the loan is longer than 5 years, then as a comparative subsidy it could be considered to be double this amount.
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