Gift Tax in Business Succession: How to Navigate the Rules

by | Sep 14, 2023

Business succession planning is a critical aspect of any successful business. It involves planning for the transfer of ownership and control of a business to the next generation or a chosen successor. 

However, transferring ownership can come with its own set of tax implications, including the potential impact of gift tax. 

Here are four tips to help you navigate through the complexities of gift tax in business succession with more ease.

What is Gift Tax?

Gift tax is a tax on the transfer of property from one person to another, and it can come into play when a business owner is transferring ownership or assets to a family member or other successor, where the recipient does not pay fair market value for the property.

How to Navigate Gift Tax?

Plan Ahead

One way to navigate gift tax in business succession is to plan. 

By starting early and developing a comprehensive succession plan that takes gift tax into account, business owners can ensure that they are making the most strategic decisions for their business and their family. 

This may involve working with a financial advisor or tax professional who can guide the best ways to structure the transfer of ownership or assets. 

Take Advantage of Exemptions and Exclusions

Another key strategy for navigating gift tax in business succession is to take advantage of available exemptions and exclusions. 

There is also a lifetime gift tax exemption that allows individuals to give up to a certain amount over their lifetime without incurring gift tax. 

By understanding these exemptions and exclusions, business owners can make strategic decisions about how and when to transfer ownership or assets. 

Consider Trust

Another way to navigate gift tax in business succession planning is through the use of trusts. 

Trusts can provide significant tax benefits as they can help reduce the value of the estate subject to gift or estate taxes. Trusts can also help ensure that the business owner’s wishes are carried out in terms of who receives ownership of the business. 

Talk to a Financial Advisor or Tax Professional

It’s always a good idea to have a trusted financial advisor or tax professional who can guide you through succession planning. 

A financial advisor can also help you navigate the world of retirement accounts, taxes, and Social Security benefits.

Look for someone who has experience working with business owners and who has a good track record of helping clients achieve their financial goals. 

Navigating gift tax in business succession planning can be complex, but with careful planning and consideration of applicable laws and regulations, business owners can help mitigate its impact. 

Don’t let the complexity of navigating gift taxes hold you back! At Kreitler Financial, we work with business owners to help them achieve their financial and retirement goals. We are proud to work with clients who have achieved a great level of success and who are committed to long-term relationships. 

Let our experienced advisors guide you toward a tailored solution that meets your needs. Schedule a call today!