Sole Proprietor?

[Guest Bob Lees]

Is it allowable for a sole proprietor to have a non qualified plan? Is there a site that would state this. We have an attorney who likes everything in writing.

Thanks.

[mbozek]

A sole propritor can defer comp for a common law emplyee the same as any employer because deferred omp is a matter of contract between the employer and the employee. See Rev. rule 61-30. However any earnings on the deferred comp will be taxed to the sole propr. unless the assets are invested in LI. why would an employee want to enter into dc with a SP who could die or go out of business? Also why would the ee want to defer comp if there is no earnings being paid on the amount of deferral?

[Guest Bob Lees]

There are no common law employees, only the sole proprietor.

[mbozek]

This makes no sense. Why would a sole prop want to defer comp to himself? Sole prop are taxed on net earnings from self employment so anything paid to the SP becomes subject to income tax in year received. Only way for sp to have deferred comp is if SP agrees to defer comp which is due from one of his customers but that plan would be maintained by customer not SP.

[MGB]

There is no such thing as nonqualified deferred comp. for a sole proprietor. Whether retained earnings are "deferred" by the individual or are just held by the "company," it is taxed as income to the individual. The question makes no sense whatsoever.

[Guest Bob Lees]

Thanks to both of you that was our response to the possible client, but we couldn't find anything in writing anywhere. Appreciate your input.

Bob

[jpod]

We are all assuming that when you use the phrase "sole proprietor" you mean an individual whose business is unincorporated. If, on the other hand, you were using the phrase to mean a one-person corporation, specifically a C corporation, the answer could be different.