Tax Planning for Selling Your Family Business – CPA in Houston
Evans Sternau CPA is a CPA in Houston and provides tax planning and tax advisory services to help you navigate the process of selling your business to family.
Tax Planning for Selling Your Family Business
There is an unprecedented wealth transfer happening right now. The Silver Tsunami is a metaphor used to describe population aging, specifically the baby boomer generation. A significant percentage of the baby boomer population are business owners. These Silver Tsunami business owners will soon be faced with the question of what to do with their business when the time comes they no longer want to or able to work. This article, written by a CPA in Houston, will outline the options available to business owners who are considering selling their business.
Business Succession Plan
A business succession plan is the foundation for successfully transitioning your business. A business owner typically has many options available to them when deciding who and how to transition their businesses. However, a business owner transitioning their business without a plan will lead to a disastrous outcome.
Selling Your Business to Family
An option available to a business owner is selling the business to a family member. A common problem encountered with selling your business to a family member is the buyer (typically a younger member of the family) does not have enough resources to purchase the business outright. A technique commonly used in this scenario is selling the business on an installment basis.
An installment sale is when the purchase price of the business is paid out of fixed number of years. Since the sale occurs over a fixed number of years, the selling price will include a principal and interest component. The selling business owner will have their tax liability from selling their business spread out over a number of years. This can lead to lower tax overall tax liability with appropriate tax planning. Evans Sternau CPA is a CPA in Houston and can provide tax planning and tax advisory services to help you navigate the process of selling your business to family.
Gifting Your Business to Family
Another option available to a business owner is gifting your business to a family member. As of 2023, each person is entitled to transfer up to $12.92 million during their life and at death, without incurring estate or gift tax liability. This $12.92 million is known as the estate and gift tax exemption. This means that if an unmarried business owner chooses to gift their business worth $12 million to their child, they may do so without incurring estate and gift tax. The previous example assumes that the business owner has not previously made taxable gifts and has no other assets other than their business. The $12.92 million estate and gift tax exemption will only be available through the end of 2025. The estate and gift exemption is expected to decrease to approximately $7 million starting in 2026. Evans Sternau CPA is a CPA in Houston and can provide tax planning and tax advisory services to help you gift your business to family.
Sophisticated Estate and Tax Planning Strategies
Lastly, there are more sophisticated methods of gifting business interests to family members. These methods utilize grantor trusts and related party loans as leverage and allow for significantly more wealth to be transferred tax-free to family members than outright gifts. These sophisticated methods require careful coordination between your CPA in Houston and your attorney. Evans Sternau CPA is a CPA in Houston- providing tax planning and tax advisory services- ready to help you with these sophisticated estate and tax planning strategies.
About The Author
Christopher Sternau, CFP®, CPA
Partner – Evans Sternau CPA LLC
Christopher Sternau is a Certified Public Accountant and Certified Financial Planner with over a decade of experience providing comprehensive tax and financial planning services to several of the wealthiest families in the United States. He focuses his practice on complex individual and closely held business tax planning and preparation. His clients have business interests in a wide range of industries including oil and gas, mining, real estate, cattle ranching, retail, technology and many others.
Chris is the founding member of Evans Sternau CPA LLC. Prior to founding Evans Sternau CPA LLC, Chris led the tax department for a family office in Houston, Texas. He also spent several years as a Tax Manager at Andersen.
About Evans Sternau CPA LLC
Evans Sternau CPA is seeking reform in an industry where responsiveness and availability are the exceptions – not the norm.
Our global network of committed CPAs and accountants places proactive thinking at the forefront of our work. With robust service offerings and client support strategies, we are always searching for opportunities to serve your best interests.
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Evans Sternau CPA provides proactive tax, accounting, and advisory services for business owners, entrepreneurs, and individuals with complex tax challenges. Evans Sternau CPA is for those that want year-round support, not just during tax season.