Tax planning must deal with the only two certain things in life:
death and taxes.
In the transfer of ownership of a family business, your family
must consider not only estate taxes, which may be imposed upon your
parents' death, but also the income or capital gains taxes that
Uncle Sam and the states will want to impose when your dad cashes
out of the business while he is alive.
A word of caution at this point: While it's a great idea to
work with professionals to help you handle the family and
succession planning issues, it is mandatory, in my opinion, that
you have a knowledgeable tax advisor to help you and your family
successfully navigate the stormy waters of tax law.
Content Continues Below
Let's look at just one tax trap that you and your family
could innocently fall into. Let's assume that you and the other
family members decide that the best way to take care of your
parents is to give your dad a lump sum payment for his stock in the
company. Your dad will then take this lump sum money and invest it
in order to comfortably live off the investment income.
Sounds like a plan, right? Wrong.
When your dad starts to complete his tax return for the year
after the sale, he quickly finds out that the lump sum payment he
received has resulted in his owing a huge tax bill that wipes out a
significant amount of his portfolio. Worse yet, his tax advisor
then tells him that the family may incur an enormous estate tax
bill after both he and your mom die.
Fortunately, there are many legally sound and acceptable
tax-planning strategies that family businesses can adopt that will
allow the transfer the ownership of the business from one
generation to the other while at the same time minimizing income
taxes, capital gains taxes and estate taxes.
The main point to remember when dealing with tax-planning issues
regarding your family business is that seeking sound tax advice
isn't everything-it's the only thing.
It takes a lot of wisdom and courage to bring up the dreaded R
word in a family business when the founders of the business get up
in years. Successful transitions of family businesses can be
difficult and, at a minimum, require careful consideration of
family, succession planning and tax-planning issues and typically
require the advice of trusted and knowledgeable advisors to help
the family members reach a win-win plan that not only rewards the
founding generation for a job well done, but also gives the next
generation the opportunity to take the family business to the next
level.
So good luck in your efforts, and always remember that blood can
be thicker than money.
Note: The information in this column is provided by the
author, not Entrepreneur.com. All answers are general in nature,
not legal advice and not warranted or guaranteed. Readers are
cautioned not to rely on this information. Because laws change over
time and in different jurisdictions, it is imperative that you
consult an attorney in your area regarding legal matters and an
accountant regarding tax matters.
Chris Kelleher is Entrepreneur.com's "Legal"
columnist and an award-winning small-business advisor and
attorney. He's also a sought-after speaker and the founder and
resident legal guru of The Law Firm For Businesses, a boutique law
firm that helps business owners creatively solve their business and
legal problems.
Page
1 |
2 | 3