Own split-dollar coverage? Here’s what to do before Dec. 31

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in Small Business Tax,Small Business Tax Deduction Strategies

Many business owners enter into "split-dollar" life insurance arrangements, in which the employer and employee share the cost of life insurance. But the IRS recently changed the rules, making those plans less attractive.

The good news: Some tax benefits still remain under existing policies. The IRS handed special status to split-dollar deals in effect before Jan. 28, 2002. (IRS Notice 2002-8) If you own a split-dollar policy, here are your three options for securing your tax breaks before year-end:

Option 1: Terminate the deal

If you hold equity in the life insurance policy, terminating the arrangement may make sense. Suppose your company paid $100,000 worth of premiums for a policy on your life, over several years. Now you own $140,000 worth of cash value in the policy.

The $40,000 excess cash value is considered equity in the policy. The IRS says that equity may be considered taxable income. So unwinding t...(register to read more)

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