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Business succession involving closely-held businesses
Kentucky business owners hope that when exiting a business they get out of it what they put into it. This is especially true when it comes to owners who have devoted much of their lives to a closely held business.
A primary concern is the taxes they will have to pay as a result of the exit. They may face tax burdens of as high as 40 percent in state and federal taxes and it's for this reason that tax and business succession planning can be so essential.
The type of entity formation can be an extremely important factor in determining the amount of tax liability owed. Also, the manner in which a business is transferred can have repercussions concerning taxes.
Business owners of a closely held entity will also want to use the tax code to their advantage by utilizing those portions of the code that could reduce or defer the taxes that will have to be paid. Assets can be protected relative to the type of entity formed by business owners. And business owners will want to put together their own personal financial plan utilizing wills, trusts, life insurance, and buy-sell agreements.
It would be a mistake to try to do all of this on one's own. The passing of one's business on is complex and involves a large number of considerations. Besides minimizing the tax consequences, it can also involve updating of documents, resolving creditor claims and reorganization of equity. Business attorneys can advise concerning such strategies. These attorneys will also have access to other resources to make certain a business succession can go smoothly.
Source: Hartford Business, "Exiting your business can be taxing," Joe Bazzano, Feb. 3, 2014