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Tax Advantages?
The advantages of the corporate tax rate may be limited by the accumulated earnings tax and alternative minimum tax.
The accumulated earnings tax is a penalty tax intended to discourage corporations from retaining earnings and profits within the corporation, thus avoiding the distribution of these funds to the shareholders in the form of dividends. To avoid the tax, corporations must be able to demonstrate that retained earnings, including life insurance cash values, are for the reasonable needs of the business.
The AMT is aimed at corporations that report sizable profits to the shareholders, but pay little or no tax. The AMT imposes a minimum tax on certain tax-preference items, including the cash value build-up in corporate-owned life insurance, as well as the death benefits. As a result, death proceeds may not be received by a corporation "tax free." To offset the effect of any possible tax, businessowners may wish to increase coverage. |
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