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what type current deductions avaialble to sub s


Guest Bill Armstrong

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Guest Bill Armstrong

One of the most commonly asked questions in the non-qualified deferred comp arena deals with deductions available to the stockholders of a sub "s" entity. I know that a REBA plan is available to employees of this company and possibly giving a tax break to the pass through entity because of the bonus arrangement but is there any way the stockholder(s)could set up a REBA type plan in order to have a tax deduction for themselves? I keep running into entites looking for current pass through deductions for themselves in the sub s environment.

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Guest wmacdonald

Although I don't deal in many sub S corp situations, we do have a concept that would allow the company to take a current tax benefit. This concept has a patent. Employees would defer money into a ERISA Trust, that would be structured for the top group. The employees pick up current income tax, however a third party would lend the trust there taxes. Example: If a employee in the sub S deferred $100,000, the company would deposit those dollars in the trust, and take a deduction. Assuming a 40% personal tax bracket, the employee's account would have a net $60,000. The third party would lend the trust $40,000, so the employee now has an account with $100,000. The account now is wrapped in a VUL insurance contract (so the earnings are taxed deferred), giving the employee the right to allocate the funds like he or she does in a 401(k)etc. Upon termination, the employee pays back the loan etc. All loan interest is paid by the company, as an additional contribution to the trust. If you want more information, please call me.

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