Your goal as a selfemployed individual is the same as that of a wage-earning employee--to reduce your taxable income by deferring
income and accelerating expenses.
In electing this approach, however, Investor foregoes the time-value-of-money benefit of deferring
Of course, since the rabbi's employer was a tax-exempt organization, deferring
the employer's deduction and causing the taxation to it of the earnings was of no practical consequence.
These plans provide many opportunities for employers, not only for deferring
or reducing FICA taxes, but also by creating ways to benefit certain classes of employees without the strict discrimination rules of qualified pension plans.
The employee could take full salary (without deferring
anything) and receive a $12,977 raise ($2,000 for the match plus $10,977--or roughly 150% of the amount of deferral not made) and the employer would be no worse off.
The doctrine of constructive receipt has been invoked in a number of deferred compensation cases.(25) Since the issuance of Revenue Ruling 60-31,(26) however, taxpayers have been successful in deferring
income and taxation with nonqualified deferred compensation arrangements.
The new rules allow owners of certain real property to sell their property and buy other "like-kind" property by deferring
the Capital Gains Tax.
Although it may not have any effect on the financial statements for the current year, accelerating deductions or deferring
income may result in additional carryback potential in future years.
The IRS is concerned about certain taxpayers using the PCM who were deferring
expenses in order to defer income.