Tax Planning

If C corporation stock is sold to an ESOP, the capital gains tax can potentially be avoided. More importantly, income attributed to shares of S corporation stock held by an ESOP may not be subject to corporate income tax. This creates significant additional cash flow to pay down company debt incurred to buy the owner’s shares. These factors are motivation enough for many business owners to consider an ESOP.

Tax Benefits of an ESOP:

• When selling to an ESOP company, taxes can be minimized
• Owners realizing an ESOP payout can mitigate personal taxes through a 1042 transaction
• Contribution of stock are tax-deductible
• Cash Contributions are tax-deductible
• Contributions, used to repay a loan the ESOP takes out to buy company stock, are tax deductible
• Sellers in a C Corp qualify for a tax deferral
• In an S Corporation, the percentage of ownership held by the ESOP may not be subject to income tax at the federal level ( and State level in some cases)
• Dividends are tax-deductible, normally used to pay down the ESOP loan