Dear E-Myth
Reader,
This week we expand on our previous exit strategy summary with an example of how Not to sell the family business to your
children. Without a thoughtful exit strategy, selling to a family member risks adding unnecessary taxes to the family burden. Conversely, a favorable business structure and good exit strategy will minimize tax exposure associated with the sale of a business. We encourage you to read the article Exit Strategy - Don't Tax Your Family.
Don't Tax Your Family
We mentioned the coming wave of businesses for sale as baby boomers retire and sell their businesses. Many of these are family businesses that will change hands by passing to the next generation. If this transition is improvised, there's a risk that your family will experience increased taxes associated with the sale. With a well-prepared exit strategy, your family can avoid most of the potential tax burden.
How Not to Sell
Let's say you're selling your plumbing company to your daughter, and she's paying fair market price for the business; terms are 10 years, plus interest.
She works, pays income tax on her earnings, and pays you from her net income. She cannot deduct the cost of her stock purchase in your company from her income.
You're receiving payments for company stock, plus interest. Profit you make on the company stock is subject to capital gains tax, and the interest income is taxable.
When you die the estate tax takes effect, and applies to unspent profit from the sale of your business.
With all taxes in full effect, there may be as little as 25% of the original gross income remaining. We describe a way out of this triple-tax-jeopardy in our article Exit Strategy - Don't Tax Your Family.
On The Website
We hope you were able to attend today's Virtual Training Seminar on 'Documenting Systems'. Next up is 'Building Your Prototype' on December 12. Check the Calendar for details.
We've got year-end discounts on E-Myth programs. See the Special Offers page for details.
Some readers were expecting a major E-Myth announcement this week. We're adding some final detail and will announce a new collaboration next week. In the meantime, think 'free business website'.
The current poll question is 'What percentage of your holiday shopping will you do online?'
Cast your vote and check the results at the E-Myth website.
Yours Truly,
The E-Myth Team
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