Executive “Double” Bonus Plans: Tax Deductible Life Insurance Premiums in Section 162
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Tax Deductible Life Insurance with 162 Double Bonus Non-Qualified Supplemental Retirement Plans
A IRC Sec. 162 executive bonus plan is a method of compensating selected key employees by paying the premiums of a life insurance policy on the employee's life. Some Requirements to Make the Plan Work:
In Double Bonus Plans
With an executive bonus plan, you select the executives to bonus and establish life insurance policies for each. Depending on the plan you choose, you may restrict the executive's access to the cash values for a specified time to encourage loyalty.
In a single bonus plan, you decide how much insurance coverage you want to offer, you pay the life insurance premiums, then report the premium payments as compensation to the executive. You'll receive a deduction for the payment, but the executive must pay income tax on the bonus amount.
You can offset the executive's increased tax due by increasing the bonus to include a separate gross-up cash payment to the executive. This is called a double bonus plan. In a specified bonus plan, you pay the executive a specific bonus. The life insurance coverage purchased is then based on this amount.
You can deduct the bonus amount as compensation. The executive must pay income tax on this bonus amount. The executive's beneficiary receives the life insurance proceeds income tax favored.
Executive Bonus Plans is a planning tool designed to assist you in exploring potential employee benefit and planning options through the use of life insurance and investment strategies. However, this presentation is not intended to be a retirement/benefit plan nor is it a specific recommendation for a retirement /benefit plan. This presentation is for illustrative purposes only. Before you make any business, estate, or retirement planning decisions, your legal and tax advisors should be consulted to determine the suitability of a particular planning alternative for you and the precise legal, tax, investment, and accounting consequences of that alternative.
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