Can we pass our business down to our children for free without any tax consequences?
My husband is the sole proprietor of a business and I am the bookkeeper/receptionist. My two sons are HVAC techs and do the work that brings in the money. We are of retirement age and would like to just pass the business down to these sons instead of selling it to them. Would this be permissible with the IRS? Can we gift the business to them with no tax consequences to them or ourselves?
A preliminary problem you have is that, as a sole proprietorship, your husband has no business to transfer. Whether the business goes to your sons or otherwise, if there's no separate entity, the business cannot legally exist without the owner (in this case, your husband). In addition, whether and how you can ultimately transfer an entity to your children tax-free depends on the form of entity, the (cost) basis in the entity, and your personal tax situation. I would suggest you consult with both an accountant and an attorney who are experienced in succession planning issues.
Nina L. Kaufman, Esq. is an award-winning New York City attorney, edutainer and author. Under her Ask The Business Lawyer brand, she reaches thousands of entrepreneurs and small business owners with her legal services, professional speaking, information products, and LexAppeal weekly ezine. She also writes the Making It Legal blog.