Accounting firms are an excellent source of help for business owners trying to minimize tax payments before, during and after a sales transaction. Other advisors such as law firms, estate planning firms, and investment companies may also have important tax expertise.
The following is a partial list of strategies that a business owner can use in minimizing income, gift and estate tax payments:
- Move assets into a Family Limited Partnership to avoid paying capital gains.
- Change from a C-Corp to an S-Corp to eliminate double taxation. There are, however, many tax considerations that must be considered before making this election.
- Create an ESOP for your company and pay no income tax on the sale of your stock to the ESOP if you are an S-Corp or if you sell at least 30% of your C-Corp stock to the ESOP.
- Create an A/B trust to utilize the full amount of the Unified Credit.
- Use life insurance to provide tax-free benefits for beneficiaries.
- Use minority shareholder and marketability discounts to increase the amount of C-Corp shares transferred into Family Limited Partnerships, resulting in paying less gift or estate taxes, where the grantor is over the Unified Credit.
- Make gifts in 2012 where the Unified Credit is still $5 million for each spouse.
- Use a Grantor Retained Annuity Trusts to reduce the amount that is subject to the Federal Gift Tax.
- Create an Intentionally Defective Grantor Trust (IDGT) to avoid paying capital gains on appreciated assets and to receive tax-free income on the interest paid to the grantor on the note.
- Create an Irrevocable Life Insurance Trust (ILIT) to move life insurance benefits out of your estate.
- Donate company shares or other appreciated assets into a Charitable Remainder Trust to receive a tax donation and income for life. Upon death the designated charity receives the remaining value of the donated asset.
- Set up a Qualified Personal Residence Trust (QPRT) to gift your home. You remove the home and any future appreciation from your estate and you are allowed to stay in the home. Works well for higher valued properties.
- Create a Dynasty Trust or an Asset Protection Trust to pass on assets to multiple generations tax-free.