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Transfer the assets. When considering a succession plan for your business to continue tothrive, adequate planning is crucial to ensure the transition is as smooth as you’d want it to be. With Mandy owning 40% of your business, you might want to consider establishing an agreement that upon the death of either of you, all of the ownership interest of the deceased is automatically purchased by the surviving owner. This is known as a buy-sell agreement and ensures that other beneficiaries or family member’s aren’t unintentionally allocated as the owner of your business [Fid163]. The buy-sell option removes the tax consequence that would be imposed should you decide to gift the business to Mandy. Included in this succession plan, you want to communicate a clear and thorough process for transferring management and ownership of the business. Some of which may include development and training for successors, delegation
TAX 655 FINAL PROJECT9of responsibility, retention plans for key employees and the timing of the transition of the business. All of which should be determined over the next three years [Fid163]. Sell the business. In the case that Mandy is not interested in inheriting the business and or continuing to run it upon your death, there is always the option to sell. Taxes imposed would be based on the capital gain amount from the sell. You would receive a lower tax rate on the capital gain than on your ordinary income. The tax rate on capital gains for most taxpayers is no higher than 15% [IRS16]. However, because your taxable income exceeds the ordinary tax rate of 39.6%, a 20% tax rate would be imposed on your capital gain from the sale of your business[IRS16]. The above referenced information should assist with those questions you have on your personal investments and the future outcome of your business. Please review and schedule a follow up meeting for us to begin planning for the future of your estate and business.The various advantagesfor each business entity depends on the desired outcome and future goals of the business owner(s). Sole proprietors, S corporations and partnerships have the advantage of using losses from the business to offset income from other sources, subject to certain limitations[And16]. These business entities are not taxed as separate companies, instead all profits and losses pass through to the shareowner(s) or member(s)[And16]. Shareowners havethe ability to contribute money or withdraw money from the business without recognizing a gain and have the luxury of not being subject to double taxation[And16]. While C corporations do not have the above listed advantages, these business entity typesdo have the luxury of providing its shareowner-employees fringe benefit tax deductibles
TAX 655 FINAL PROJECT10[And16]. This entity can select a fiscal year versus the standard calendar year as its reporting period without needing to demonstrate a business purpose or specific election [And16]. C corporations, including partnerships are not limited to certain types of owners over the company[And16].