Magazine article The CPA Journal

Inbox: Letter to the Editor

Magazine article The CPA Journal

Inbox: Letter to the Editor

Article excerpt

Calculating Section 127 Savings

In the article "Using IRC Section 127 Plans in a Family Business: EmployerProvided Education Assistance" in the November 201 1 issue of The CPA Journal, there is an error in the last section on page 60 under the subheading "Worthwhile Benefits." In the first paragraph of that section, it gives an example and calculates that the annual savings of utilizing a section 127 plan in the example is $4,663.50. The correct answer is $1,837.50, still a nice savings, but significantly less than stated.

The $1,837.50 savings is arrived at by comparing the 35% tax benefit with or without the $5,250 contribution to the plan (35% ? $5,250 = $1,837.50).

The article incorrectly compared the bef oretax cost of not having a plan ($8,076) with the afìer-tax cost of having apian ($3,412.50), arriving at a savings of $4,663.50.

Larry Silver, CPA

Bergenfield, NJ.

Authors' Response

How do we arrive at a net impact of $4,663.50, when the tax benefit of paying a $5,250 qualified plan benefit through the business's IRC section 127 plan is only $1,837. …

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