Enhanced By An
Employee Stock Ownership Plan (ESOP)
By using an ESOP, a
shareholder can make a donation to a charity, create positive cash flow,
receive a personal tax deduction, and provide a cash gift for the charity.
The stock is given to the charity and the ESOP subsequently purchases the
stock from the charity.
Assumptions:
Stockholder in 40% individual
bracket. (Federal and State combined)
Taxpayer is shareholder of Company.
Company has or will install ESOP.
WITHOUT ESOP
1. Stockholder gives $100,000
in cash to charity.
Results:
1. Charity has $100,000 in
cash.
2. Stockholder saves $40,000 in taxes.
3. Net cash flow to stockholder is -$60,000
WITH ESOP
1. Stockholder gives $100,000
to charity.
2. Company contributes
$100,000 to ESOP instead of making the contribution to a different retirement
plan.
3. Charity sells stock to ESOP
for $100,000.
Results:
1. Charity has $100,000 in
cash.
2. Stockholder saves $40,000 in taxes.
3. No incremental cost to company.
4. Net cash flow to stockholder is +$40,000.
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