Having a Plan in Place Can Alleviate Stress in the Future
Author: Keith Huggett
Many small businesses lack any sort of strategy for succession. While planning who will take over your business is important, having a tax strategy in place to ensure that your business can continue after your death is even more crucial.
When you die, your estate will be subject to taxes. The amount of taxes is in flux because of the constant gyrations of the tax code since the expiration of the Bush tax cuts in 2010. The general situation, however, is that any business worth more than a few million dollars may be subject to anywhere between 35 percent to more than 50 percent in federal and state taxes.
The key to a successful tax strategy for succession is to reduce the value of your business that could be subject to estate taxes. This type of planning is complicated, but here are some of the things that you can do as a business owner:
- Gift a small portion of your ownership in the business to your heirs every year, and take advantage of the annual tax-free gifting provisions of the tax code.
- Sell off assets to reduce the total size of the business that would be subject to estate tax. Sale leasebacks of company-owned real estate is an especially good strategy to accomplish this goal.
- Purchase and transfer to your heirs life insurance that will pay the estate tax liability due on your business when you die.
- Sell shares in your business to your children at attractive prices. You can even lend them the money to purchase the shares at a low interest rate.
- Give shares of your business to your heirs, even if you have to pay gift tax, now while the business is smaller.
