Whether for tax compliance, financial reporting, or purely from an employee incentive standpoint, ESOPs play a key role in the continued growth of the client by enabling high employee retention in the long term. Over the years, ESOP plans have evolved to become increasingly complex in nature, so as to be safely compliant with all the laws, as well as to tie in with other reported financials of companies. This continued evolution of ESOP agreements has warranted valuation experts to be on their toes and remain constantly updated with the industry best practices to meet newer challenges.
Knowcraft provides comprehensive ESOP-related services, including initial fairness opinion, deal structuring, annual plan revisions, expensing advice, option redemption and cancellations, as well as responding to assessment queries by the auditors, IRS and Department of Labor (DOL).
A C-Corp entity elects to convert into an S-Corp primarily for two key taxation considerations:
In effect, an S-Corp is a much more tax effective business vehicle.
However, the timing of election to move from a C-Corp structure to an S-Corp is a key decision to be made by business owners because in case the converted entity were to sell whole or any part of it, business with the sold part having embedded value creation from the preceding 10 years post conversion, your client will be liable to pay tax on such embedded value!
It is very evident how complex and tricky this S-Corp election can prove to be for your clients. One wrong move can lead to a disastrous tax assessment while that one right move can enable them to save massive amounts of taxes in the long term. The key decision to make is to choose the ‘right’ advisors and partners.