More Tax-Managing Considerations

As a business, you have numerous other tax-managing opportunities available to you. See which ones fit your business.

Hire Family Members

Consider adding your spouse or children to your payroll to help maximize business tax deductions. A spouse who is an employee may be entitled to make IRA contributions or participate in your company's retirement plan. The family business can also provide all employees, including spouses, with additional benefits, such as health insurance, for which the premiums would be a business deduction. If you're self-employed, wages paid to children under age 18 aren't subject to Social Security or Medicare taxes. Of course, your kids must work to earn the wages.

Exit Planning

Potential taxes can significantly impact the proceeds from selling your business. One way to reduce the tax impact is to conduct an installment sale, especially if the buyer lacks sufficient cash or will pay a contingent amount based on the company's performance. Installment sales spread the gain over the contract's length, which may help avoid triggering the Net Investment Income Tax or short-term capital gains. However, there can be drawbacks, including the recapture of depreciation in the year of the sale or increasing tax rates in future years.

SMART MOVE: Consider the entire picture when planning to sell your business. Tax consequences are only one of many important considerations.

If you're gifting your business to family members during your lifetime, you'll need to file a gift-tax return. You'll have the option of paying an immediate gift tax, or you can use your lifetime gifts and estate-tax exemption (currently $15 million). Unless the value of your business exceeds the exemption, you shouldn't owe any tax on the gift.

You have another option if you eventually plan to give your business to a family successor, but the business's value exceeds the exemption. You can use the annual gift-tax exclusion ($19,000 in 2026) to gradually give an ownership interest each year without incurring taxes.