In 1826 the German author Joseph Freiherr von Eichendorff (Jo-Eich for short) published a novella titled (in English) Memoirs of a Good-for-Nothing. Both he and it are unimportant except for a Latin phrase from the book: Quod licet Iovi, non licet bovi, translated, “What is permissible for Jove, is not permissible for the bull.” It describes the common double standard when, “what is permitted to one important person or group, is not permitted to everyone.”
Seems a bit unfair, but the expression can be turned on its head: “What is permissible to the bull, is not permissible to Jove.”
The visibility and responsibilities of those in high places often deny them the flexibility and lack of restraint enjoyed by the common folks in the seclusion and simplicity of their more private lives and smaller worlds.
A good example is in the matter of non-qualified benefits and owners of businesses; but the reversed double standard is caused by the tax law, not because of anyone’s high or low position or estate.
Consider the following assuming a 100% company owner with full-time employees.
These include benefits whose cost is immediately deductible to the employer, but for which taxation of those costs is deferred and not recognizable to the plan participants until benefits are actually received. The most common examples are qualified retirement plans. The limitations for the owner are, first, that there is a ceiling on how much can be contributed on his/her behalf. In addition, contributions must be made for qualifying employees, reducing the attractiveness of the plan for owner-retirement.
These most commonly take the form of Deferred Compensation (DC) or Executive Bonus (EB) plans. Here the employer has broad latitude to discriminate regarding participation and the amount of benefits under the plan, but any employer deduction for a contribution must take place and only takes place when that amount is recognizable as income to the benefiting employee.
(An S-Corp, partnership, or an LLC taxed as either one) Premiums paid under an EB plan are deductible to the business, but recognizable on the owner’s W-2 that year. Any undistributed amounts held under a DC plan are still reported on the owner’s Schedule K-1 for that year.
(Or an LLC taxed as a C-Corp) Here too, EB premiums are deductible to the company, but reportable on the owner’s W-2. But amounts held for a DC plan contribution fare even more poorly. The money held back is first taxed in the company’s corporate bracket. At distribution there is a business deduction, but the owner gets taxed again in his/her personal bracket.
A personally-owned, over-funded life insurance policy acts much like a Roth IRA, but without all of the disadvantages of a Roth. Let’s talk about that next week.
Winston Churchill certainly understood the privileges of position. The story goes that one morning several subtle altercations had taken place between him and his long-standing personal valet, David Inches. Later in the day the following exchange took place: Churchill: You were very rude to me, Inches. Valet: You were very rude to me, sir. Churchill: Yes, but I’m a great man!
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