The ESOP Tax Advantage Calculator
Explore how an ESOP could work at your company
The ESOP Tax Advantage Calculator, developed by Employee Benefits Law Group, illustrates some of the tax benefits afforded to employee stock ownership plans (ESOPs). Its purpose is to display what the potential tax benefits of an ESOP may be to the company and to the selling shareholder(s). For more context, see our article describing the major ESOP tax incentives.
Looking for a deep dive? NCEO members can now use our powerful Excel-based ESOP Pre-Feasibility Calculator to model how an ESOP could work at their company in depth. Our book Selling to an ESOP and Financing the Deal is a good starting point for understanding ESOP transaction mechanisms, tax considerations and financing in detail.
There are many ways to structure ESOP transactions that will affect these tax benefits. This calculator is not intended to replace the need for professional guidance. A full feasibility study will project the advantages tailored to your potential transaction.
This calculator attempts to provide the after-tax economic impact of various ESOP transactions. For simplicity, this model shows a deduction for principal payments not only for C corporations but also for S corporations, even though a 100% S corporation ESOP does not get to deduct the principal on the loan (in that case, the company has no taxes to pass through and hence no taxable income from which to make deductions). Rather, for S corporations, it models the difference between an ESOP transaction and an after-tax non-ESOP transaction. The cash flow impact of a sale to a 100% ESOP, at least on the issue of the after-tax cost of the debt to buy out the owner, is, however, the same in a C or S.