What is Profit-Sharing Plan ?
Profit-sharing plan is a retirement plan that gives employees a share in profits of a company. Employee receives a percentage of company’s profits based on its quarterly or annual earnings.
How Profit-Sharing Plan Works ?
This plan allows employer to share profits in the business, up to 25% of the company’s payroll, with the firm’s employees. The employer can decide how much to set aside each year.
Who can Participate in Profit-Sharing Plan ?
This plan is available for a business of any size. Sole proprietorships, partnerships, LLC’s, LLP’s or incorporated businesses may establish a Profit Sharing plan.
Types of Profit-Sharing Plans
There are several types of profit-sharing plans such as, Cash Plan, Deferred Plans, Combination Plan, Pro-rata plan, Age-weighted plan and New comparability plan.
Contribution Limits for Profit-Sharing Plan
In 2023, the contribution limit for company sharing its profits may not exceed the lesser of 100% of compensation or $66,000. If include catch-up contributions it increases to $67,500.
Tax Advantages of Profit Sharing Plan
Employer contributions are tax deductible for the employer and Tax-deferred growth potential is possible, all investment earnings increase tax-deferred until withdrawn.
Reporting of Profit-Sharing Plan
Companies that offer a profit-sharing plan have to file Form 5500 annually with both the IRS and the U.S. Department of Labor to share information about the plan and its operation.
Click Here to Set Up G-KLX39XJNSQ
How to Set Up a Profit-Sharing Plan ?
A profit-sharing plan may be established by a business owner to offer their staff members a sense of pride in the enterprise.