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Caring For Generations

Do You Know the Value of Your Business Interests?

On Behalf of | Jul 21, 2021 | Business Law, business planning, estate planning documents, estate planning lawyer

One way or another, the value of your business is going to directly affect the amount of tax you or your heirs will owe, cautions. Having a handle on your business value will prove particularly important when:

1. You are gifting part of, or all of the business to others.

A gift of an ownership stake in your company can be accomplished with a direct gift or a gift to an irrevocable trust. You might be transferring shares to a family member or to an employee as part of an employment package. Whoever the recipient, if the value exceeds the annual gift tax exemption (currently $15,000 per recipient) you will need to report the gift on a gift tax return, and you would need to have a professional valuation for gift tax purposes.

2. You are selling either a partial interest in or all of your business, effecting the transfer either all at once or in stages.

A sale to either heirs or to an outside party can be structured so that the full purchase price is financed by an installment note payable to you as the seller, explains Josh Lefcowitz of As the buyers pay back the loan, that provides you with an income stream during the note term. A current and fair valuation of the business would be needed for proper tax reporting.

3. You die.

The estate tax is calculated based on the Fair Market Value (FMV) of the estate’s assets at the time of the decedent’s death, peakbusinessvaluation reminds owners.. A valuation is often necessary to determine the FMV of closely held securities or business interests left by the deceased.

Business valuations should not be a one-and-done affair either, the authors stress, because any profitable business is likely to grow in value over time. Sometimes, too, one-time events or industry developments can effect dramatic changes in the value of a business.

“Never allow your business to be unprepared for unforeseen events again,” reads the headline of a May 2020 article in the Boston Business Journal contributed by CPA John Geraci. A solid financial plan for a business consists of budgets and forecasts with built in – and variable – assumptions and cash flow models, Geraci explains. The message, he says is this: while no one can say with certainty what the future holds and how long the economic impact of Covid-19 will linger, but those who are prepared will rebound the fastest.

At Geyer Law, we consider valuation to be part and parcel of both business and estate planning, beginning with the initial business formation and choice of entity, continuing through the stages of development and expansion, touching on employee benefits, mergers, gifts and estate planning. We understand the importance of creating secure agreements and doing initial and periodic review of business succession planning.

– by Rebecca W Geyer