CFP

AAA

Gifting - Strategies for Closely-Held Business Owners

Strategies for Closely-Held Business Owners
In addition to the gifting opportunities to charities (discussed in section 79), closely held business owner's can gift assets and/or income to family members in an S corporation or Partnership as a pass through to shareholders. Gifts of shares can be made to younger family members over the years to take advantage of the annual exclusion – which results in income being shifted. If the gift is to a child under the age of 24, "kiddie tax" rules may apply (a disadvantage of conduit income). In addition, this strategy, to pass income through, is best fit for S corporations that are capital sensitive (e.g., manufacturing plant, warehouse, E-ray equipment etc.) and not suitable for S corps that are service related (e.g., CPAs, attorneys, consultants, etc.) because these businesses cannot shift income (tax trap).

A Family Limited Partnership (FLP) operates among members of a family (spouses, children, and trusts established for those persons). If a partnership among family members is a genuine partnership, it will be treated tax-wise the same as any other partnership. The family partnership is a technique used as a means to shift income from parents to children or other family members. FLPs can qualify for various valuation discounts if the following requirements are met:

  • Income and tax benefits must be distributed according to each owner's percentage in the partnership.
  • The general partner(s) may be paid for personal service to the partnership.
  • Capital must be "a material income-producing factor"; income cannot come from personal services of the general partner.

Also, the use of a gift-leaseback can be used when a business-owning parent wishes to establish a program of gifting but is held back by lack of available assets (except for business assets). The parent gives the business assets (fully depreciated) outright or in trust to a lower-bracket family member, and leases the asset back for use in his or her business. The parent can continue using the asset, take a deduction for the lease payment and still enjoy all the other advantages inherent in gifting.

Gifts of Present Interest & Gifts to Non-citizen Spouses
comments powered by Disqus
Related Articles
  1. Another Sound Lesson In Risk Management
    Investing News

    Another Sound Lesson In Risk Management

  2. Choosing The Right ETF Index To Reach ...
    Investing News

    Choosing The Right ETF Index To Reach ...

  3. Using Normal Distribution Formula To ...
    Investing Basics

    Using Normal Distribution Formula To ...

  4. Hypothesis Testing in Finance: Concept ...
    Active Trading Fundamentals

    Hypothesis Testing in Finance: Concept ...

  5. Top 6 Ways To Recession-Proof Your Job
    Personal Finance

    Top 6 Ways To Recession-Proof Your Job

Trading Center