Chapter 32
BONUS PLAN
LEARNING OBJECTIVES:
A. Have a basic understanding of employee and executive bonuses
REVIEW:
This chapter.
CHAPTER OUTLINE:
A.
B.
C.
D.
E.
F.
G.
H.
I.
What Is It?
When Is It Indicated?
Advantages
Disadvantages
Tax Implications
Alternatives
How Are These Plans Set Up?
Where Can I Find Out More About These Plans?
Questions And Answers
FEATURED TOPICS:
Bonus plans
CFP® CERTIFICATION EXAMINATION TOPIC: NONE
COMPETENCY:
Upon completion of this chapter, the student should be able to:
1
Chapter 32
1. Have a basic understanding of employee and executive bonuses
KEY WORDS:
bonus plan, 2½ month safe harbor technique
DISCUSION:
1. Discuss advantages and disadvantages to paying and receiving
compensation as bonuses.
2. Discuss reasons why a specific definition of profits is beneficial with
bonus plans based on profits.
QUESTIONS:
1. Which one of the following is seen as a primary advantage to bonus
compensation?
a. tax benefits are greater
b. it does not have to meet the requirement of reasonableness for
employer deductibility
c. it allows flexibility to reflect company performance
d. tax deferral is often an added benefit
Chapter 32, p. 277
2. For bonuses paid after the end of the taxable year, what is the maximum
amount of time the company can delay paying the bonus, and still be allowed
to deduct the payment?
a.
b.
c.
d.
1 month
2 ½ months
4 ½ months
6 months
Chapter 32, p. 278
ANSWERS:
1. c
Chapter 32
2. b