An educational benefit trust can be established to provide the payment of college expenses to the children of your key employees. The right of the key employee to have his children receive this benefit is conditioned upon his future performance of services.
The employer reduced their taxable income by $5,000 by establishing an educational benefit trust to provide the payment of college expenses for the children of their key employees. Since the employers income was taxed at the 30% tax bracket, the income reduction may decrease their income taxes by $1,500 ($5,000 x 30%).
If you are in a combined (federal, self-employment, and state) tax bracket of 30%, you could reduce your taxes up to $300 for every $1,000 of income reduction by establishing an educational benefit trust to provide the payment of college expenses for the children of your key employees.