When you take on the task of estate planning, it is important to consider how passthrough business income will be taxed after it is transferred, and if it should be transferred while the owner is still living. The amount this income will be taxed depends on whether it is active, passive, or portfolio income.
Who manages the business once it is transferred, and how active a role they play in the business, also has bearing on how it will be taxed. For example, an heir of the business owner may face different tax implications than a fiduciary who is managing the assets on behalf of someone else. A fiduciary's role in the business after transfer can influence the income type, and therefore taxation.
By considering how pass-through business income will be taxed after a transfer, estate planning can be done in a way that minimizes tax liabilities. This can save heirs and beneficiaries a significant amount in taxes, ensuring that more of the inheritance remains intact.
Passthrough business income and how it is taxed is an important part of estate planning. Taking the time to properly determine the best way to handle this type of business will help an efficient and smooth transfer, minimize tax liabilities, and help safeguard the business in the future.
To learn more about passthrough business transfers, please contact Richard Kollauf, a Principal at SVA Certified Public Accountants.