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Business Succession Planning: Passing Along interest in

Company to children Father and mother...
Business Succession Planning: Passing Along interest in Company to children
Father and mother want to gift their interest in family business (construction company) to their two sons.Current ownership structure is 20% father, 20% mother, 20% son 1, 20% son 2, 20% family friend. Annual gift exclusion for 2017 was 14,000 per person. In other words each parent could transfer 14,000 to each child (all together 48,000).Company is small family business. How do they value the business for gifting purpose?
What form or letter needs to be signed to transfer interest in company?
How to apply minority interest discount?
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Answered in 2 hours by:
3/5/2018
Richard
Richard, Tax Attorney
Category: Tax
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Experience: 29 years of experience as a tax, real estate, and business attorney.
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Hi! My name is Richard & I will be helping you today! It will take me a few minutes to type a response to your question. Thanks for your patience!

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Good evening. Actually, you can make a gift of much more than that without any income or tax consequences. First, pursuant to Section 102 of the Internal Revenue Code, gifts are not income and thus do not need to be reported on the income tax return. There should be no gift tax consequences. Recipients of gifts are not subject to gift tax. And, there should also be no gift tax due from the donor. Each donor (and each spouse is considered a separate donor) can give $14,000 ($15,000 in 2018) per year per person under the annual gift exclusion. In addition to that, for any amounts in excess of the $14,000/$15,000 in a year, each person has a $5,490,000 lifetime exemption ($11,200,000 in 2018)....which means a person can give a cumulative amount of up to $5,490,000 ($11,200,000 in 2018) in gifts over and above the $14,000/$15,000 annual gift exclusion amount without incurring gift tax....the donor must file a gift tax return to let the IRS know how much of the lifetime exemption is being used, but there will be no gift tax until cumulative additional gifts have exceeded the $5,490,000 ($11,200,000 in 2018).

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Customer reply replied 1 month ago
If we want to avoid gift tax return, what paperwork is required to support gift of company interest?
How do we value small company if professional appraisal if too expensive for them?
How do we apply minority interest discount?

Good morning. If your total estate is not going to be taxable...i.e., the total estates of you and your husband do not exceed to $20,400,000, there is no penalty for not filing the gift tax return. If your company is a corporation, you note the change in the corporate record book along with your valuation when you record the stock transfer to the children; if your company is an LLC, you do an Assignment of Interest and note the valuation in that document.

Richard
Richard, Tax Attorney
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