An Employee Stock Ownership Plan (ESOP) is a company-funded retirement plan, very similar to a profit sharing plan that holds company stock in accounts for the participants. An ESOP is a defined contribution plan and contributions are at the discretion of the employer.
ESOPs are a great tool for succession planning where there are no family members to take over and you, the owner, want your employees to continue the business.
The employer can deduct contributions to the ESOP including both principal and interest on loans the ESOP uses to buy company stock. Companies can contribute their own shares to the ESOP and take a tax deduction for them.
An ESOP can be leveraged or unleveraged. It can borrow money to purchase employer stock.
If operating as an S Corporation the ESOP does not pay tax on its share of company profits. For the C Corporation owner there is possibility of deferring capital gains by reinvesting in qualified investment property.
The ESOP rules offer excellent planning alternatives. These come with a cost for professional services of attorneys, and trustees, as well as annual valuations, audits and administrative fees.
Our knowledgeable professionals at KRD have assisted clients in adopting and implementing ESOP plans. Contact us today to learn more.