One of the common pieces of advice that is given to entrepreneurs and small business owners is that it is important to know when to get out of a business. After all, every business owner dreams of retirement; whether it is spending days on the beach in Cozumel, or just spending a majority of their time volunteering to a cause they believe in. Either way, knowing one’s exit strategy is should be paramount because it can greatly affect your retirement.
Why should an exit strategy be important? Consider this; the sale of a business can be a taxable event that could lead to a large sum of taxes to be paid. So if you don’t want a large portion of your potential profit from the business going to Uncle Sam instead of into your retirement coffers, it is critical that you embrace an exit strategy.
Of course, your tax strategy depends on who your buyer will be. It is not uncommon for business owners to gift the business to a family member (particularly children). This may be a good idea depending on how much the business is worth, and how it will affect your lifetime gift tax credit. Some business owners transfer the business to a trust, and designate a trustee to oversee the operations so that it may continue to be a benefit to the business owner’s heirs.
Other business owners feel secure in transferring the property by leaving specific instructions in their will for how it may be distributed. But this assumes that even though they are retired, they will still own an interest in the business.
Ultimately, preserving wealth is critical. If you have tax questions, an experienced attorney can help.