tailieunhanh - Lecture Employee benefits and retirement planning - Chapter 32: Bonus plan

Chapter 32 - Bonus plan. The following will be discussed in this chapter: Discuss advantages and disadvantages to paying and receiving compensation as bonuses, discuss reasons why a specific definition of profits is beneficial with bonus plans based on profits. | An addition to regular salary or compensation that is provided, usually near year end, to enable employees to share in the profits of a successful year. What is it? Copyright 2009, The National Underwriter Company to enable shareholder-employees in closely held companies to withdraw maximum compensation income from the company each year to provide executives of larger corporations an incentive-oriented compensation based on attaining profit or other goals during year to assist executives in funding cross-purchase buy-sell agreement or in contributing their share of premium in split-dollar arrangement When is it indicated? Copyright 2009, The National Underwriter Company provides effective incentive-based form of compensation allows compensation to reflect company performance in closely held and larger corporations flexible and simple to design Advantages Copyright 2009, The National Underwriter Company no opportunity for employee to defer taxation of compensation for more than one year tax deduction for employer limited by ‘reasonableness’ requirement bonuses taxable to employee as ordinary income Disadvantages Copyright 2009, The National Underwriter Company a bonus cannot be deducted unless it constitutes a reasonable allowance for services actually rendered no deduction permitted for compensation >$1,000,000 paid to certain top executives of publicly held corporations Tax Implications Copyright 2009, The National Underwriter Company bonuses CAN be large IF based on profits or earnings and the company has a very good year reasonableness of compensation often tested in accord with circumstances existing when entered bonus agreement vs. when bonus paid IRS and courts consider the risk faced by employee Tax Implications Copyright 2009, The National Underwriter Company plan ahead when using bonuses as employee compensation to be able to defend ‘reasonableness’ of compensation 2½ month safe harbor rule an accrual method corporation can deduct a | An addition to regular salary or compensation that is provided, usually near year end, to enable employees to share in the profits of a successful year. What is it? Copyright 2009, The National Underwriter Company to enable shareholder-employees in closely held companies to withdraw maximum compensation income from the company each year to provide executives of larger corporations an incentive-oriented compensation based on attaining profit or other goals during year to assist executives in funding cross-purchase buy-sell agreement or in contributing their share of premium in split-dollar arrangement When is it indicated? Copyright 2009, The National Underwriter Company provides effective incentive-based form of compensation allows compensation to reflect company performance in closely held and larger corporations flexible and simple to design Advantages Copyright 2009, The National Underwriter Company no opportunity for employee to defer taxation of compensation for more