LO3 Suresh is a sales representative for Swinley Manufacturing. The corporation Communication Skills maintains a defined contribution profit-sharing plan on behalf of its employees. It contributes 15% of each employee’s salary. Suresh’s salary for the year is $190,000.

Because of his record sales achievement during the year, the company decides to pay Suresh a bonus of $75,000. He is aware of the tax benefits associated with pension plans and has asked the controller of the company to pay him $35,000 of the bonus in cash and to contribute the remaining $40,000 ($75,000  $35,000) to his pension.

Prepare a letter to Suresh explaining the tax consequences of his proposal.