There are tax benefits for ESOPs. In this video, we’ll discuss several ESOP tax deductions.
The Internal Revenue Code provides several ESOP tax deductions for companies:
- First, a company can distribute up to 25% of eligible payroll to an ESOP just like for a profit sharing plan.
- Second, the company can deduct an additional 25% of payroll for the purposes of making payments on a loan.
- Third, if the company is a C corporation then the interest on the loan is not included in the 25% contribution limit.
Finally, once again for a C corporation the company can actually pay a dividend on the shares and can take a deduction for that dividend if that dividend is used to make loan payments, or if that dividend is passed through to ESOP participants and they are allowed to take it in cash or elect to buy more shares in the plan.
ESOP Tax Benefits – Read More
In the article ESOP Tax Benefits: A Brief Overview, Wendy Gilligan explains ESOP’s tax features and benefits for business owners, plan participants, and corporations. You can further explore at the National Center For Employee Ownership.