Tax and Estate Planning for Business Owners 

estate planning
August 24, 2023

Business owners have a full plate on a day-to-day basis and need to keep their attention focused on their everyday operations and long-term plans for growth. As a result, it’s not unusual for small business owners to put estate planning on the back burner as they concentrate on the work at hand. 

However, estate planning is essential for the lifespan and security of any company. This is especially true when it comes to taxes on estate money and other estate considerations, as the strategies are inherently more complicated when there’s a business involved, as well as personal assets. 

Small companies can do a simple search for “tax preparation services near me” to address the more simple accounting that a business requires. However, when it comes to estate planning, you need a personal and corporate financial expert at your side. 

At Waters Hardy, we help with all the intricate details of individual and business estate planning and can create a detailed plan that minimizes taxes while honoring your long-term wishes and goals.  

In the meantime, consider these estate planning tips and fundamentals to get a jump start on this often overlooked but essential part of running a successful business. 

What is Estate Planning? 

Estate planning entails creating a comprehensive and legally binding plan of what happens to your assets. This includes your business and its future management – after you pass away. Creating an estate plan long before one is required is a smart investment, simply because it provides peace of mind for both the business owner and/or partners, and their loved ones, employees, and all stakeholders involved.  

Keep in mind that when it comes to business owners, estate planning often involves much more than simply creating a will. Corporate estate planning includes creating a succession plan and/or outlining the details of a future business sale, depending on the individual owner’s wishes. 

Who Pays Estate Tax? 

All federal and state estate taxes are paid from the assets of your business and overall estate before these assets can be distributed to your heirs. Your trustee or executor will be responsible for filing and submitting these tax returns and ensuring all taxes are paid.  

The amount of estate taxes paid can vary greatly from year to year. For example, the estate taxes you may calculate now could grow as your business enjoys more success. Also, the tax laws regarding estate taxes can adapt and evolve. For example, in 2022, the federal estate tax would only be applied if the assets of an individual’s estate were worth $12.06 million or more. In 2023, this exemption limit increased to $12.92 million. 

In addition, there are currently 12 states that impose separate estate taxes, as well as six states that have inheritance taxes.  These state taxes have lower thresholds than the current federal limit of $12.92 million. 

Considerations When Estate Planning for Businesses 

A company can be operated in three different structures (partnership, sole proprietorship, or corporation), but regardless of the business structure, tax and estate planning applies across the board. With that being said, here are some considerations to remember when estate planning, regardless of the composition or details of your business. 

Create a Succession Plan 

How will your business pass on to the next generation or continue to thrive after your lifetime? This is where succession planning comes into play.  

Owners who are in a partnership or have other parties who are financially connected to the business will want to pay careful attention to this aspect of estate planning. That is because it ensures a smooth transition for all stakeholders involved and continues your company’s mission and vision without deviation.  

Include a Living Trust 

A living trust is a legally binding document created when an individual is of sound mind and body that outlines the directives regarding your assets. These documents are orchestrated by a Trustee – a named individual or legal entity of your choosing.  

A living trust is so important for business owners, especially those in sole proprietorship situations, as often your personal and company assets are inherently entwined together. For example, the brick-and-mortar location of your business, your equipment and products, and all of the assets that allow your company to function are part of your assets. With a living trust in hand, you can ensure that these assets stay within the business, allowing it to function for the long-term. 

Consider Appointing a Financial Power of Attorney 

A Financial Power of Attorney is another legal document that can be instrumental for a business owner. As a result, it allows an individual to appoint a trusted individual to handle all finances after they pass away.  

While individuals can often name a trusted loved one or friend, business owners must be more selective simply because of the complicated financial, tax, and other income-related details that naturally go with running a company. As such, it’s often in a business owner’s best interests to appoint a person with extensive knowledge of corporate finances, estate planning, and taxes. This way, you can ensure that all bases are covered, and smart decisions are made that keep a company going strong. 

Estate Planning for Business Owners is Complicated, but Waters Hardy Can Help 

At Waters Hardy, we work with companies and corporations of all sizes to provide the best accounting, tax, and financial services possible. This even includes larger and more complicated processes like estate planning.  

As a business owner, you are likely adept at handling the day-to-day accounting that keeps your operations running smoothly. However, when it comes to essential and lifetime financial considerations like estate planning, you shouldn’t do it alone. 

At Waters Hardy, we can help ensure your wishes are adhered to and your business continues for generations. With an expert financial partner like Waters Hardy guiding the way, you can rest assured that all your assets, employees, and loved ones are well taken care of and that your business enjoys continued success for many decades to come.  

Reach out to us today to start a discussion about estate planning. 

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