Tax benefits of ESOPs

Employee Stock Ownership Plans (ESOPs) offer tax benefits for both companies and employees. For companies, contributions used to buy shares are often tax-deductible, reducing taxable income. For employees, any gains made when they sell shares are typically taxed at lower capital gains rates, rather than higher regular income rates. Additionally, employees don’t pay taxes on shares until they sell, allowing their investments to grow tax-deferred. These benefits encourage companies to promote ownership among employees and help employees build wealth over time with favorable tax treatment.