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Old 10-10-2014, 07:14 AM
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Income - Double Tax

Allright, here's the situation.

I worked for a company that was sold in 2012, Dec 31st. As part of our buyout, the owner built some retention bonuses into the buyout, where if we stayed a certain amount of time, we would receive income from the new company. It was structured that if anyone on that "bonus" plan left before the time period was up, then the former owner of the company would receive that money that was owed to the employee. It was his money that was owed that he built into the buyout for that purpose. We were to receive 20% of the money Jan 1, 2013, then 20% Dec 31, 2013 and the final payment would be Dec 31, 2014.

Here's the tricky part and the questions I have. I stayed on with the the new company until March of 2013. I received the the first two 20 percent payments.

The former owner still owns the corporation that was purchased, but that corp forfeited its right to do business. There have been a few people, including myself that left before that final payment. I have a verbal agreement with the owner, who is now a business partner of mine in a completely different corporation, that if I left early, he would still give me 60% payment that was due to me at the end of this year.

Now the question is, what is the best route for him to take to give me that money. The new company will pay him (the old corp actually, not him personally, but he was 100% owner) and he believes it will be paid to him as a capital gain.

The concern of course is him being presented a taxable event, and then him gifting that to me and then I would be double-taxed on that money? My accountant says it can be done because the government can only tax it once.

Advice and thoughts welcomed



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Old 10-12-2014, 05:48 AM
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Posts: 5,230

The former owner still owns the corporation that was purchased, but that corp forfeited its right to do business. There have been a few people, including myself that left before that final payment. I have a verbal agreement with the owner, who is now a business partner of mine in a completely different corporation, that if I left early, he would still give me 60% payment that was due to me at the end of this year. Now the question is, what is the best route for him to take to give me that money. The new company will pay him (the old corp actually, not him personally, but he was 100% owner) and he believes it will be paid to him as a capital gain. ===>>>>>>>>The way a pool is handled can impact a company's entitlement to deduct bonuses at the end of a service year. As long as an ER is contractually obligated to pay a minimum amount of bonuses at the end of a service year, it is entitled to deduct that minimum aggregate amount from its tax bill even if it is unable to calculate the specific amounts due to be paid to EEs before the end of that financial year.

The concern of course is him being presented a taxable event, and then him gifting that to me and then I would be double-taxed on that money? ===>>No you, as an EE, wouldn’t be double taxed; giving gifts, bonuses, or awards to employees carries tax implications for both businesses and employees; aslongas they are taxable, your ER must deduct all applicable federal, state, and local income and FICA taxes. Your ER must also pay other employment taxes (unemployment tax, for example) on the amounts. The gifts/awards/bonuses are deductible to your ER as a business expense. To be deductible, often these items have limits. Your ER can deduct no more than $25 of a gift to any EE each year.





My accountant says it can be done because the government can only tax it once=====>>>>>>>Retention bonuses are treated like any other end-of-year bonus; the FICA rules still apply to retention bonuses, so they are liable for Social Security and Medicare contributions.As said, your ER must deduct all applicable federal, state, and local income and FICA taxes .So, the bonus is considered for tax in the year that it is paid, and it is taxed at the employee's usual tax rate. As the bonus is taxable in whatever year it is received, so if you postpone its receipt, then it would postpone the tax. However, since this is taxed at regular rates.

NOTE; Your ER may provide a gift to you, an employee, which may create a tax liability. Small de minimis gifts do not create any tax liability for either the ER or the EE. A larger gift establishes a tax liability and the EE must report the gift as income. The EE should make sure that the item is actually a gift, not additional compensation, which is taxable income. Both the EE and the ER pay taxes when an EE receives taxable income.



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