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3 Tax Planning Considerations for Your Family Business

September 2, 2021 3 Min Read Family Business Structure, Family-Owned Businesses
Steven E. Staugaitis, CPA, CVA Director, Audit & Accounting, Small Business Advisory Services Group Leader, Family-Owned Businesses Group Co-Leader

Succession planning defined

With potentially imminent tax changes that may impact tax brackets, tax rates, and exemption levels, many family business owners are wondering what they can do to prepare so that strategies can be implemented in a timely manner.

Here are three key tax planning considerations for family businesses to investigate.

Review your personal assets.

If you haven’t done so in the past two years, take a fresh look at your overall personal assets for estate planning opportunities. With lifetime exemptions likely to decrease significantly in the near future and business valuations on the rise, it may be time reevaluate your situation.

When recalculating your personal assets, don’t forget to contemplate the value of your estate not just with the assets you currently own, but also with the potential proceeds of any life insurance policies. You may find that now may be a good time to freeze the current value of the family business through the use of a gift into a family trust.

In addition, discounts that are currently available when valuing private companies may be limited or even go away in the coming years. Even when overall asset values are currently below exemption levels, it’s the value several years from now that will matter most. Coordinating with your accountant, estate attorney, and financial planner now can save significant amounts in taxes later down the road.

Revisit the company retirement plan.

The retirement plans in many family businesses are an often underutilized tool for accumulating liquid assets in a tax-efficient manner. Features such as profit-sharing contributions, Roth 401k contributions, or even after-tax accounts can be ways to super-charge building wealth and diversifying assets away from the value of the family business.

Keep in mind that certain provisions, like a profit-sharing contribution or company match, will need to be allocated to all eligible employees. However, in the current labor market, a more robust retirement plan can be an effective way to attract and retain top talent.

Evaluate long-term structural changes.

In the event that the business’s ownership transition plan is intended to go to next generation family members, now is a good time to evaluate longer-term structural changes. Tools like splitting the company stock into voting and nonvoting shares will allow differences in valuation and provide flexibility for meeting control objectives. Also, putting in place certain long-term agreements such as deferred compensation plans for key family members that have been working in the business can be an effective strategy to provide income security upon retirement or other defined events.

Many of these strategies can take several weeks, and in most cases, several months to put in place, leaving limited time between now and the end of the year for execution. Accountants and attorneys are anticipating a rush of requests in the coming months, so getting the conversation started soon will help manage what can realistically be accomplished before the end of the year and ahead of any tax reform changes.

Steven E. Staugaitis is a director at Kreischer Miller and a specialist for the Center for Private Company Excellence. Contact him at Email or 215.441.4600.


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Steven E. Staugaitis, CPA, CVA

Steven E. Staugaitis, CPA, CVA

Director, Audit & Accounting, Small Business Advisory Services Group Leader, Family-Owned Businesses Group Co-Leader

Family-Owned Businesses Specialist, Small Business Advisory Specialist, Business Valuation Specialist, Transition/Exit Planning Specialist

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