United States

Comprehensive planning for family businesses

Five ways to strengthen wealth and minimize tax


Planning to protect as well as grow your wealth and family business has never been more difficult. The combination of volatile financial markets, a difficult regulatory environment, and a dauntingly complex tax code continues to increase uncertainty and challenge traditional business strategies. And while considering these relentless issues, business owners must also contemplate how these variables impact their future and important business decisions, especially related to successful exit strategies and succession planning.

What can family business owners do to grow and protect wealth and help ensure a strong foundation to meet the needs of the future? One approach involves being more mindful of the tax and asset protection ramifications in five key areas:

  1. Engaging in estate and business succession planning
  2. Evaluating the implications of new and potential tax hits, such as the Medicare contribution tax on investments
  3. Choosing your state local residency to save taxes and wealth
  4. Maximizing capital gains vs. ordinary income
  5. Choosing flexible and tax-efficient business entities

Addressing these areas can fortify your family business, re-establish channels of wealth, and build a strong foundation for the organization to develop a secure succession transition when the time is right. The call to action is clear – build and monitor a complete plan and avoid piecemeal reactions to one set of factors.

Estate and business succession planning

By utilizing methods still available and taking decisive action now, you can help ensure protection of your personal and business assets through sound estate planning. The utilization of trusts and other effective business structures adds critical protections as well. All closely held businesses have unique planning needs, especially if the business is to remain in a family for the next generation or fund retirement needs. It is important to make sure your plan is in place while keeping pending and new legislation in mind. Recent changes in and focus on the tax law around individual wealth could impact existing plans that may have been created years ago and in a different environment.

Planning for the hit of new and potential taxes

The health care reform legislation significantly broadened the Medicare tax base for higher-income taxpayers by enacting new taxes on investment income. There are tax-planning strategies that may reduce or defer these taxes now, however. Much depends on a fresh reconsideration of how business organizations are structured and where owner activity is documented.

State residency planning

Where you live and maintain your business matters and have never been more critical to a comprehensive wealth strategy. The contrast between various state tax systems is significant. And potential savings can arise not just with income tax rate differentials, but also as a result of the intricate laws involving a business expanding beyond one state. Careful consideration of residency could make a big impact on estate tax as well. Never overlook the power of a few percentage points of tax savings over a significant period of time, which can affect family business revenues, future worth and growth.

Capital gains or ordinary income

You can plan now to optimize capital gains income rather than relying on ordinary income. Capital gains tax rates are lower than rates on regular business and compensation income. But, even capital gains and their favorable rates are the focus of tax increases. How do you best time the recognition of such gains to subject them to tax at the right moment? What current capital gains are under attack? These are important factors to consider.

Flexible and tax-efficient business entity options

There are differing advantages to C corporations, S corporations and limited liability companies (LLCs). Understanding these nuances is essential for your specific business. What happens if you go from one entity type to another? Knowing the attributes of these structures has never been more important, particularly when you can integrate their benefits with the four areas discussed above. Using different structures for different types of businesses and income streams can yield a huge multiplier effect on years of growing wealth.

By revisiting or originating plans around these five areas, your wealth and business can be strengthened financially. Your diligence now can create the foundation to launch a powerful level of protection and tax minimization.


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