profit sharing

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profit sharing,

n a mechanism for funding a retirement plan for employees or members of a professional association. Members are eligible for a percentage of the net income based on predetermined formulae. Such plans, properly executed, are legal and ethical and are to be differentiated from fee splitting, which is illegal and unethical, in which a referring professional shares in the fee-for-service income of another professional.


the amount by which income exceeds expenditure.

profit sharing
profit sharing between a professional and a lay person is illegal in most countries because it is considered to be improper for a nonveterinarian to have any authority over the quality and style of the work of a professional person.
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Other firms consider net worth and dividends to be paid before contributions to the profit-sharing plan can be made.
Profit-sharing plans have been in existence since the early 19th century.
In the Employee Benefits Survey, profit-sharing plans are defined as arrangements in which companies make contributions, based on profits, to individual employee accounts.
The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) increased both the employer profit-sharing plan deduction limit and the individual annual addition limit, making it easier for employers and participants to maximize their qualified retirement plan benefits through a single profit-sharing plan.
Those proposed regulations said, in effect, a profit-sharing plan that allocates contributions based on age does not necessarily discriminate in favor of the highly compensated.
This every-other-year plan is defeated by the further limitation contained in A-26 of Notice 87-16, which provides that, when contributions to a discretionary profit-sharing plan for two plan years are made in one calendar year, the contributions for the later plan year are deemed to be made in the next tax year.
4971 underfunding excise tax was unwarranted when the underfunding was a result of a book entry misallocation of funds between a pension plan and a profit-sharing plan, and neither the plans nor the sole participant was harmed.
These two rulings illustrate the IRS's continuing effort to strictly enforce the prohibited transaction rules applicable to qualified pension and profit-sharing plans.
While a complete review of these regulations is beyond the scope of this article, the new rules on the following topics will be discussed: defined contribution plans; coverage (which is where most practitioners will focus their attention to determine whether a plan or component of a plan satisfies these rules); plan benefits, rights and features; allowing discrimination and coverage violations to be retroactively corrected; and age-weighted profit-sharing plans, an important type of retirement plan whose use will become much more prevalent as a result of these regulations.
The Profit Sharing/401(k) Council of America (PSCA) is a broadly based association of diverse businesses who believe that profit-sharing plans, 401(k)'s and related savings and incentive programs strengthen the free-enterprise system, empower and motivate the workforce, improve domestic and international competitiveness, and provide a vital source of retirement income.
ESOPs and discretionary profit-sharing plans: When an employer makes discretionary contributions to a profit-sharing plan or ESOP that is allocated to a company stock fund within a participant's account and there is no participant direction for such allocation, the allocation is reportable by an insider, but is an otherwise exempt purchase.
Example 1: A profit-sharing plan requires the employer to make annual contributions "in cash or in kind" equal to a given percentage of the employer's net profits for the year.