July 12, 2012 (Press-News.org) Something that many small business owners worry about it how their businesses will survive after the original owners die. Business owners often want to have their businesses pass down through generations of the family so that all of the hard work and dedication that it took to make the business thrive can live on. However, the changes that may come to estate taxes at the end of 2012 might make it more difficult for small business owners to protect assets from taxes and keep their businesses going through the generations.
Current Estate Tax
The I.R.S. defines the estate tax as the "tax on the right to transfer property after death." The tax is based on the fair market value of all of a person's possessions at the time he or she dies.
In 2001, Congress passed legislation increasing the amount of the estate tax exemption each year, and eliminating the tax completely for the year 2010. They also lowered the estate tax rate from 55 percent to 35 percent. In 2010, Congress passed legislation setting the estate tax exemption at $5 million for 2011-2012, indexed to inflation, and kept the tax rate at 35 percent. However, unless Congress acts to extend the current tax levels, the estate tax exemption will revert to $1 million after December 31, 2012, and the tax rate will increase back to 55 percent.
Hurting Small Businesses?
Many small business owners worry about how the potential changes to the estate tax laws could affect their businesses. The value of many businesses is tied up in non-liquid assets, such as equipment, goods, machinery and real property. If a business owner dies and the heirs are forced to pay taxes on the value of the business over $1 million at a rate of 55 percent, they often have to sell the business to generate enough money to pay the taxes.
Heirs who are fortunate enough not to have to sell the business entirely in order to pay estate taxes still have to sacrifice portions of the businesses -- and divert funds that could be reinvested in the business to make it grow.
Consult an Attorney
Estate planning can become complicated, especially when people are trying to protect family businesses. If you are a small business owner and have questions about the best way to ensure that your business will remain in the family for many years to come, consult an experienced estate planning lawyer who can advise you of your options.
Article provided by Willis Law
Visit us at http://www.michiganestatelawyers.com/
Reversion of Estate Tax to $1 Million Could Impact Family Businesses
The changes that may come to estate taxes at the end of 2012 might make it more difficult for small business owners to protect assets from taxes and keep their businesses going through the generations.
2012-07-12
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[Press-News.org] Reversion of Estate Tax to $1 Million Could Impact Family BusinessesThe changes that may come to estate taxes at the end of 2012 might make it more difficult for small business owners to protect assets from taxes and keep their businesses going through the generations.