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Are ESOP Contributions Fully Tax Deductible?

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A common question regarding ESOPs is if ESOP contributions are tax deductible. Watch our video to learn more.

Transcript

ESOP contributions are fully tax deductible whether they are in the form of stock or cash and they are deductible up to the limits of the Code which are 25% of the eligible compensation of participants in the plan or if more contribution is needed, an additional 25% of the eligible compensation for the purposes of making payments on an ESOP loan and then in addition to that for a subchapter C corporation the interest on the ESOP loan can be excluded from the 25% limitation. 

Finally, even though it’s not strictly speaking a contribution, a corporation can pay a tax deductible dividend to an ESOP to help it meet its financing needs thereby making all of the cash flow through an ESOP tax deductible. 

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