Have you ever considered deferring a portion of your salary or bonus until a future year? This column will review the advantages and disadvantages of such a decision. In order to defer compensation (and the tax thereon), an employee must make an election to do so prior to the time period during which the income will be earned.

ADVANTAGES Since deferred compensation is not subject to current tax, the gross amount is available to earn interest or for a similar investment. Since the interest or similar growth is not taxable until paid, compounded growth at pre-tax yields is available. The example below illustrates this concept: No deferral Bonus: $10,000 (less income tax at 39.6 percent ($3,960) equals $6,040. Earnings at eight percent per year (4.832 percent) after tax for ten years) -- Total: $9,813.

Deferral Bonus: $10,000 (plus earnings at eight percent per year for ten years ($12,755) equals $22,755. Less income tax ($9,011) -- Total: $13,744.

Another potential advantage could be that your individual tax bracket or tax rates, in general, will be lower when the funds are received. In the late 1980s, when the US tax rate was at a maximum of 28 percent (for one year only), hundreds of millions of dollars were withdrawn from deferred plans.

DISADVANTAGES Once the election to defer receiving the bonus is made (usually for five to ten or to retirement), the funds are unavailable and cannot be touched in case of an emergency. Funds deferred cannot be counted in the base formula for qualified plans, so be sure that a deferral of a bonus does not adversely affect a corporate contribution to a benefit plan. Since the interest rate on the deferred amounts is usually fixed, if interest rates rise, you will have a locked in lower rate. While income taxes could fall, they also could rise, which would affect the after tax result illustrated above.

A significant disadvantage is that you are an unsecured creditor of the company for which you work. Most companies simply make a bookkeeping entry, promising to pay the deferred amount in the future. If the company experiences financial difficulty, you may never see your money.

PLANNING While it may sound risky to defer compensation, proper planning can avoid the disadvantages noted above. An employer can make alternative investments available to the executive under a deferred compensation plan if a fixed interest rate is viewed as a negative. The choices can range from an investment in the employer stock to a choice of various mutual funds.

If a concern exists regarding the viability of the company, you should request that the deferred amounts be put into a "rabbi'' trust, thus segregating the cash from other company assets. Further protection can be obtained by purchasing an insurance policy which will guarantee payment in the event that the company defaults on the deferred compensation.

In order to receive the advantage of a tax deferral, planning must be: Coupled with tax free compounded growth on the gross deferred amount.

Integrated with employer provided alternative investment opportunities.

Backed up by an insurance policy which will guarantee payment in the event that the company defaults on the deferred compensation.

US CITIZENS WHO RENOUNCE CITIZENSHIP There has been significant publicity regarding new tax legislation dealing with US citizens and resident aliens who give up their US citizenship or green card. What has gone unpublicised is the recent Immigration Act which contains a clause that reads as follows: "Any alien who is a former citizen of the United States who officially renounces US citizenship and who is determined by the Attorney General to have renounced US citizenship for the purpose of avoiding taxation by the US is excludable.'' In other words, don't come back.

We have been unable to ascertain what criteria the Attorney General will use to make the determination that the renouncement was for tax avoidance purposes. Whether it will be the same criteria as that in the tax legislation is also unknown. We also understand that more information will not be forthcoming until March, 1997.

Our thanks to Joanne Orizal, an immigration attorney with Winston & Strawn in New York, for the above summary.

The tax advice given in this column is, by necessity, general in nature. You should, of course, check with your own US tax consultant about how specific transactions affect you since tax advice varies with individual circumstances.

James Paul Sabo, CPA, is the President of Expatriate Tax Services, PO Box 617, Bernardsville, New Jersey and is associated with GulfStream Financial Ltd. in Bermuda.