Business owners can engineer big tax savings when passing their company's stock, during their lifetime, to their kids.
Leniency from the IRS means that business owners can now engineer big tax savings when passing their company's stock, during their lifetime, to their children.
For example: Imagine your company is worth $10 million, says Sarah Rothermel, a senior partner at the Boston law firm of Hale and Dorr. Previously, if you gave each of your two children a 20% stake, each would owe a 55% gift or estate tax on a $2-million transfer.
"Now the IRS is willing to grant minority status to family members who will own less than 50%" -- outsiders always had that tax break -- "so they can apply a minority discount, generally ranging from 15% to 50%, to the value of their stock," says Rothermel. Assuming a 30% discount, each child now owes tax on only a $1.4-million transfer. Consult your attorney to see if minority discounting might work for you.