esops and income tax

[Guest Angie Horn]

If I have a client who owns all of the stock of a corporation and he pays income tax of about $400,000 every year, how can starting an esop reduce his taxable income? He is only willing to give up about 20% of the company to key employees.

[This message has been edited by Angie Horn (edited 09-27-1999).]

[RLL]

Angie.....if you're a student, how do you have clients?

An ESOP will not reduce his taxable income unless the company is an S corp and he sells a portion of his shares to the ESOP.

If he wants to reduce his taxable income, he can reduce his compensation from the corporation.

This does not sound like a good situation for an ESOP. A company should establish an ESOP only if it wants to share ownership of company stock with employees.

Maybe this "client" would be better served by your suggesting that he reduce his tax liability through charitable contributions....let his money do some good for the rest of the world.