When it’s time to consider your business’s future, succession planning can protect your legacy and successfully set up the next generation of leaders or owners. Whether you’re ready to retire, you wish to step back your involvement or you want a solid contingency plan should you unexpectedly be unable to run the business, exploring different succession strategies is key. Here are five options to consider, along with some of the tax implications.

 

1. Transfer directly to family with a sale or gifts

One of the most common approaches to business succession is transferring ownership to a family member (or members). This can be done by gifting interests, selling interests or a combination. Parents often pass the business to children, but family succession plans can also involve siblings or other relatives.

 

Tax implications:

Gift tax considerations. You may trigger the federal gift tax if you gift the business (or part of it) to a family member or if you sell it to him or her for less than its fair market value. The annual gift tax exclusion (currently $19,000 per recipient) can help mitigate or avoid immediate gift tax in small, incremental transfers. Plus, every individual has a lifetime gift tax exemption. So depending on the value of the business and your use of the exemption, you might not owe gift taxes on the transfer. Keep in mind that when gifting partial interests in a closely held business, discounts for lack of marketability or control may be appropriate and help reduce gift taxes.

Estate planning. If the owner dies before transferring the business, there may be estate tax implications. Proper planning can help minimize estate tax liabilities through trusts or other estate planning tools.

Capital gains tax. If you sell the business to family members, you could owe capital gains tax. (See “5. Sell to an outside buyer” for more information.)

 

2. Transfer ownership through a trust

Suppose you want to keep long-term control of the business within your family. In that case, you might place ownership interests in a trust (such as a grantor-retained annuity trust or another specialized vehicle).

Tax implications:

Estate and gift tax mitigation. Properly structured trusts can help transfer assets to the next generation with minimized gift and estate tax exposure. Trust-based strategies can be particularly effective for business owners with significant assets.

Complex legal framework. Because trusts involve legal documents and strict rules, working with us and an attorney is crucial to ensure compliance and optimize tax benefits.

 

3. Engage in an employee or management buyout

Another option is to sell to a group of key employees or current managers. This path often ensures business continuity because the new owners already understand the business and its culture.

Tax implications:

Financing arrangements. In many cases, employees or managers may not have the funds to buy the business outright. Often, the seller finances part of the transaction. While this can provide ongoing income for the departing owner, interest on installment payments has tax consequences for both parties.

Deferred payments. Spreading payments over time can soften your overall tax burden by distributing capital gains across multiple years, which might help you avoid being subject to top tax rates or the net investment income tax. But each payment received is still taxed.

 

4. Establish an Employee Stock Ownership Plan (ESOP)

An ESOP is a qualified retirement plan created primarily to own your company’s stock, and thus it allows employees to own shares in the business. It may be an appealing choice for owners interested in rewarding and retaining staff. However, administering an ESOP involves complex rules.

Tax implications:

Owner benefits. Selling to an ESOP can offer potential tax deferrals, especially if the company is structured as a C corporation and the transaction meets specific requirements.

Corporate deductions. Contributions to an ESOP are usually tax-deductible, which can reduce the company’s taxable income.

 

5. Sell to an outside buyer

Sometimes, the best fit is outside the family or current employees or management team. You might decide to sell to an external buyer — for example, a competitor or private equity group. If you can find the right buyer, you may even be able to sell the business at a premium.

If your business is structured as a corporation, you may sell the business’s assets or the stock. Sellers generally prefer stock (or ownership interest) sales because they minimize the tax bill from a sale.

Tax implications:

Capital gains tax. Business owners typically pay capital gains tax on the difference between their original investment in the business (their “basis”) and the sale price. The capital gains rate depends in part on how long you’ve held the business. Usually, if you’ve owned it for more than one year, you’re taxed at the applicable long-term capital gains rate.

Allocation of purchase price. If you sell the assets, you and the buyer must decide how to allocate the purchase price among assets (including equipment and intellectual property). This allocation affects tax liabilities for both parties.

 

Focus on your unique situation

Business succession planning isn’t a one-size-fits-all process. Each option has unique benefits and pitfalls, especially regarding taxes. The best approach for you depends on factors including your retirement timeline, personal financial goals and family or employee involvement. Consult with us to ensure you choose a path that preserves your financial well-being and protects the business. We can advise on tax implications and work with you and your attorney to structure the deal advantageously. After all, a clear succession plan can safeguard the company you worked hard to build.

If you made significant gifts to your children, grandchildren, or other heirs last year, it’s important to determine whether you’re required to file a 2024 gift tax return. And in some cases, even if it’s not required to file one, you may want to do so anyway.

Requirements to file

The annual gift tax exclusion was $18,000 in 2024 (increased to $19,000 in 2025). Generally, you must file a gift tax return for 2024 if, during the tax year, you made gifts:

• That exceeded the $18,000-per-recipient gift tax annual exclusion for 2024 (other than to your U.S. citizen spouse),
• That you wish to split with your spouse to take advantage of your combined $36,000 annual exclusion for 2024,
• That exceeded the $185,000 annual exclusion in 2024 for gifts to a noncitizen spouse,
• To a Section 529 college savings plan and wish to accelerate up to five years’ worth of annual exclusions ($90,000) into 2024,
• Of future interests — such as remainder interests in a trust — regardless of the amounts, or
• Of jointly held or community property.

Important: You’ll owe gift tax only if an exclusion doesn’t apply and you’ve used up your lifetime gift and estate tax exemption ($13.61 million in 2024). As you can see, some transfers require a return even if you don’t owe tax.

Filing if it’s not required

No gift tax return is required if your gifts for 2024 consisted solely of tax-free gifts because they qualify as:

• Annual exclusion gifts,
• Present interest gifts to a U.S. citizen spouse,
• Educational or medical expenses paid directly to a school or health care provider, or
• Political or charitable contributions.

But you should consider filing a gift tax return (even if not required) if you transferred hard-to-value property, such as artwork or interests in a family-owned business. Adequate disclosure of the transfer in a return triggers the statute of limitations, generally preventing the IRS from challenging your valuation more than three years after you file.

The deadline is April 15

The gift tax return deadline is the same as the income tax filing deadline. For 2024 returns, it’s April 15, 2025. If you file for an extension, it’s October 15, 2025. But keep in mind that if you owe gift tax, the payment deadline is April 15, regardless of whether you file for an extension. Contact us if you’re unsure whether you must (or should) file a 2024 gift tax return.

Social Security plays a crucial role in retirement planning, and understanding its complexities can make a significant difference in financial security. At the third annual Social Security Workshop, hosted by the Social Security Administration (SSA), attendees explored the ins and outs of Social Security benefits, eligibility, and enrollment. Whether you’re preparing for retirement or simply looking to understand how the system works, the insights from this session offer valuable takeaways.

Making the Most of the Social Security Enrollment Process

For those approaching retirement, the importance of applying for Social Security benefits online was emphasized. The process is streamlined and efficient, allowing applicants to manage their claims without the hassle of in-person visits. The AI companion was introduced as a tool that records and summarizes discussions, making it easier to reference key points later.

To navigate the system smoothly, attendees were encouraged to set up a my Social Security account. This online tool provides easy access to benefit estimates, earnings history, and personal records. Given the shift to an appointment-only model at Social Security offices, having an online account is more important than ever.

Looking ahead, attendees were invited to the next workshop session, set for March 11th, which will focus on Medicare Parts A and B—another essential component of retirement planning.

How the Social Security System Works

One of the biggest misconceptions about Social Security is that it functions like a personal savings account, where you get back exactly what you paid in. In reality, Social Security is designed to replace a percentage of a worker’s pre-retirement income. The actual benefit amount is calculated based on the highest 35 years of earnings subject to Social Security taxes.

Key takeaways:

• Retiring early reduces your monthly benefit, while delaying retirement increases it.
• The FICA tax, which funds Social Security and Medicare, is split between employers and employees.
• Some workers may be exempt from paying the full FICA tax, depending on their employment status.

Earning Social Security Benefits: What You Need to Know

To qualify for Social Security retirement benefits, individuals must accumulate 40 credits, earned by working and paying into the system. Typically, this means working at least part-time for 10 years.

Social Security benefits are calculated based on lifetime earnings, adjusted for inflation and wage trends over time. If you retire early, your monthly check will be lower, while delaying retirement past your full retirement age can result in increased benefits.

A link to an online benefit calculator was provided, allowing individuals to estimate their future payments based on their earnings history.

When Should You Retire? Key Considerations

Retirement planning isn’t just about when you stop working—it’s about maximizing your benefits. Several age-based strategies were discussed:

• Age 62: The earliest you can claim Social Security, but with a reduced benefit.
• Full Retirement Age (FRA): Varies based on birth year; claiming at this age ensures 100% of your benefit.
• Delayed Retirement (up to Age 70): Each year you wait beyond FRA increases benefits by 8% annually.

Choosing when to retire is a personal decision, but tools like the my Social Security online calculator can help individuals determine their best path based on earnings and financial goals.

Earnings Limits: How Working Affects Your Benefits

If you plan to continue working after claiming Social Security, you’ll need to be mindful of earnings limits. For those under full retirement age, the 2024 limit is $23,400. If you earn more, your benefits will be reduced by $1 for every $2 over the limit.

However, once you reach full retirement age, these limits disappear, and you can earn as much as you want without affecting your benefits.

Other important considerations:

• Earnings limits apply to both individual and spousal benefits.
• If you retire mid-year, only earnings from that point forward are counted.
• If you become disabled before reaching full retirement age, you may qualify for both disability and retirement benefits.

Spousal and Survivor Benefits: Understanding Eligibility

For married and divorced individuals, spousal and survivor benefits can provide additional financial security. Key points covered included:

• Claiming spousal benefits early may result in a reduced payout.
• Divorced spouses can receive benefits under certain conditions.
• The lump sum death payment is available to eligible survivors.

Understanding these rules can help couples and individuals strategize their claims for maximum benefit.

Recent Changes to Social Security

One of the most significant updates discussed was the Social Security Fairness Act, which has eliminated the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO). While this is great news for many retirees, it was noted that the changes will take time to implement due to staffing shortages, with full implementation expected within a year.

Additional updates:

• Those who never applied for benefits won’t have WEP and GPO rules applied retroactively.
• The SSA encourages individuals to subscribe to their website for real-time updates on policy changes.

Setting up a my Social Security account is a great starting point. Additionally, the SSA website provides essential tools and resources for estimating benefits, tracking earnings, and planning for the future.

As retirement approaches, staying informed and planning ahead can make all the difference. Whether through workshops, online tools, or speaking directly with SSA representatives, there are many resources available to help individuals make the best decisions for their financial future.

You may wonder if you can claim itemized deductions on your tax return. Perhaps you made charitable contributions and were told in the past they couldn’t be claimed because you didn’t have enough deductions to itemize. How much do you need? You can itemize deductions if the total of your allowable itemized write-offs for the year exceeds your standard deduction allowance for the year. Otherwise, you must claim the standard deduction.

Here’s how we’ll determine if you can itemize or not for 2024 when we prepare your return.

Standard deduction amounts

The basic standard deduction allowances for 2024 are:

• $14,600 if you’re single or use married filing separate status,
• $29,200 if you’re married and file jointly, and
• $21,900 if you’re a head of household.

Additional standard deduction allowances apply if you’re age 65 or older or blind. For 2024, the extra allowances are $1,550 for a married taxpayer age 65 or older or blind and $1,950 for an unmarried taxpayer age 65 or older or blind.

For 2025, the basic standard deduction allowances are $15,000, $30,000, and $22,500, respectively. The additional allowances are $1,600 and $2,000, respectively.

Don’t assume

Suppose you think your total itemizable deductions for 2024 will be close to your standard deduction allowance. In that case, spend some extra time looking at all your expenditures to make sure you’re not missing some itemized deduction items. In other words, don’t reflexively assume you can’t itemize for 2024 just because you didn’t for 2023.

In addition to charitable contributions, consider the following key expenses:

Mortgage interest. Check the 2024 Form 1098 for the exact amount of mortgage interest expense you paid. You can generally deduct interest on up to $750,000 of home acquisition debt that’s secured by your primary residence and one other residence, such as a vacation home. If you use married filing separate status, the limit is $375,000. If you took out a home equity loan and used the proceeds to buy or improve your primary residence or a second residence, that counts as home acquisition debt as long as it doesn’t put you over the $750,000/$375,000 limit.

State and local taxes. Add up the state and local income and property taxes you paid in 2024. If you have a mortgage, property taxes will be shown on the Form 1098 you receive from the lender. The maximum amount you can deduct for all state and local taxes combined is $10,000, or $5,000 if you use married filing separate status.

Instead of deducting state and local income taxes, you can choose to deduct general state and local sales taxes. Making that choice may pay off if you paid nothing or not much for state and local income taxes. You can use one of two methods to quantify your deduction for state and local sales taxes. Assuming you have the necessary records, you can deduct the actual amount of sales taxes you paid in 2024. Alternatively, you can opt to claim a sales tax deduction based on an IRS table. The optional deduction allowance is based on the state where you reside, your filing status, your income, and the number of your dependents. If you use the IRS table, you can add actual sales tax amounts for certain big-ticket items to the amount from the table. These items include:

• Cars, trucks, SUVs and vans,
• Boats and aircraft,
• Motorcycles and off-road vehicles,
• Motor homes, mobile homes or prefab homes, and
• Materials to build or renovate a home.

Medical expenses. You can deduct qualified medical expenses you paid for 2024 to the extent they exceed 7.5% of your adjusted gross income. If you paid qualified expenses for a dependent relative, such as an elderly parent you support, include those expenses in your total. To deduct a dependent’s expenses, you must pay them yourself. You can’t count expenses that you simply reimburse your dependent person for. Eligible expenses also include qualified long-term care insurance premiums, subject to age-based limits.

Claim all deductions you’re eligible for

Gather all your records, and we’ll run the numbers when we prepare your tax return. Contact us if you have questions or want more information on this or any other tax subject.