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Home > Resources > ESOP > Are ESOP Contributions Fully Tax Deductible?

Are ESOP Contributions Fully Tax Deductible?

February 7, 2020 by Employee Benefits Law Group

A common question regarding ESOPs is if ESOP contributions are tax deductible. Watch our video to learn more.

Transcript

ESOP contributions are fully tax deductible whether they are in the form of stock or cash and they are deductible up to the limits of the Code which are 25% of the eligible compensation of participants in the plan or if more contribution is needed, an additional 25% of the eligible compensation for the purposes of making payments on an ESOP loan and then in addition to that for a subchapter C corporation the interest on the ESOP loan can be excluded from the 25% limitation. 

Finally, even though it’s not strictly speaking a contribution, a corporation can pay a tax deductible dividend to an ESOP to help it meet its financing needs thereby making all of the cash flow through an ESOP tax deductible. 

Filed Under: ESOP

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EDITOR’S NOTE: We did the best we could to make sure the information and advice in this article were current as of the date of posting to the web site. Because the laws and the government’s rules are changing all the time, you should check with us if you are unsure whether this material is still current. Of course, none of our articles are meant to serve as specific legal advice to you. If you would like that, please call us at (916) 357-5660.

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