The Tax and Retirement Advantages of Employee Stock Ownership Plans for Small Business Owners

If you’re a small business owner, you may want to consider implementing an employee stock ownership plan (a.k.a. ESOP). An ESOP can provide an incentive for employees while reducing your corporate tax burden, according to thinkadvisor.com. Another distinct advantage is the potential bridge ESOPs create for you to retire comfortably. How? Well, you can gradually sell your business to your employees while, in the process, defer recognition of any gain you make on the sale many years down the road. This is what’s known as a Section 1042 transaction and can allow you to defer taxable gain on the sale of your business indefinitely. But before we get into those benefits, let’s review some basics about ESOPs. They were pretty much unknown until 1974. At that point, they started to grow and about 11,000 companies now have these plans, covering over 13 million employees. An ESOP is basically a trust created...