subject: Your Business as a Tax Shelter [print this page] Your Business as a Tax Shelter Your Business as a Tax Shelter
YOUR BUSINESS AS A SHELTER
Particularly if you are a corporation, your business can helpyou fund the liquidity of your estate, while making onlymodest inroads on your personal pocketbook.
Group life insurance, for example, is a tax deductible wayto purchase for you and your employees the cheapest lifeinsurance coverage available anywhere. In terms of helping tofund basic life insurance requirements for you and your work ers, this is an approach which should not be overlooked.
Learn More About Life Estate Planning
An accident and sickness plan may cover one or more employees, and there may be different plans for differentemployees or classes of employees. In order that contributionsto the plan by the employer will qualify for a tax deduction, aresolution should be passed by the Board of Directors statingthat an accident and sickness plan is being adopted for selectedemployees, identifying them either by title or name. The em ployer pays the premiums, but the employee applies for, ownsthe policy, and has the benefits payable directly to himself orhis beneficiary.
The premiums paid by the employer for accident and sickness insurance under such a plan are deductible as a businessexpense and the amount of the premium paid by the employeris not considered to be taxable income to the insured employee or employees.
Any payments up to $100 a week, except first week nonhos-pital-confined sickness, to an employee absent from work be cause of personal injury or sickness are free from income tax.This $100 tax-free weekly maximum benefit must include anybenefit payments provided under certain state disability plans. The employee must include in his taxable income any benefitpayment received in excess of $100 a week.
Pension plans also offer a tax-sheltered method for achieving security for you and your employees. The annual contribution to the trust is tax deductible to the corporation, but isnot taxable as income to you. This, then, is a means ofeffecting personal savings with 100-cent dollars, rather than your own after-tax dollars. And since pension plans can be written to provide an insurance benefit in the event that deathovertakes you before retirement, the pension plan offers you ameans of placing life insurance in force, the premiums forwhich will not be your personal responsibility. Best of allpossible worlds, this insurance benefit is not taxable in your estate. If you die before reaching retirement, your wife will be taxed only on the cash value portion of the life insuranceincome tax onlyand on this only after taking credit for anautomatic $5,000 exemption.
Time was when a pension plan was thought of only interms of major corporations. In actuality, for the principal ofa closed corporation, the fact that he can have a plan approvedby the Internal Revenue Service that will allocate to him inexcess of 50% of the annual contribution makes a pensionplan amust in the intelligent use of the business in personalestate planning.
