Business Succession Tax Planning Services

Business Succession Tax Planning Services in Houston

Estate tax planning is considerably more complex when business succession is involved, and expert tax planning services are frequently required to minimize the tax impacts of transferring business ownership. There are several factors to keep in mind when planning business succession, including:

Who has an ownership interest in the business
Who will receive the business following succession
The value of the business and the estate it is part of
Where the business is in its growth cycle

Depending on the above, business succession tax planning may be necessary to avoid an expensive tax bill and to protect the company’s assets for future owners. Estate tax planning professionals can provide valuable guidance in this area and develop an effective tax saving strategy for business owners.

Business Succession and Taxes: What to Expect

Business succession, in any form, typically means a significant tax bill at some point. Business owners will need to consider the following:

Capital gains taxes – Whenever real property, facilities or equipment assets are sold as part of a business, the seller will incur capital gains taxes as a result of profiting from the sale.
Estate taxes – If your business will be transferred to one or more beneficiaries as part of an estate, its value will be included in the estate’s overall value, too, which may push it beyond the estate tax threshold.
Transfer taxes – Transfer taxes are assessed when certain transactions are made and usually assessed at the local or state level. In most cases, discussions about transfer taxes center around real property transactions, but they are also relevant for business succession purposes – specifically, when a business is sold. Upon selling the business, the buyer will be responsible for transfer taxes, so they’ll need to be factored in when pricing the sale.

When developing a tax planning strategy for business succession purposes, these are the taxes that the professionals will plan around.

Tax Planning Strategies for Business Succession

First, there are many moving parts when developing tax planning strategies for business succession, as it’s often part of a major transaction, or as part of an estate and inheritance to beneficiaries. It’s wise to get an estate planning expert involved early – ideally, one with tax expertise. A business tax expert can develop a tax planning strategy that’s tailored to the business and its owner’s preferred course of succession. This strategy may include the following:

If you’re leaving the business to family – If you’re expecting to transfer ownership to family members, estate taxes will be the primary concern. There are, however, a few ways to reduce estate taxes through smart tax planning methods.

For example, if you have plenty of time left before business succession, owners can slowly transfer their interest in the business to family members as a gift.

Gifting ownership interest will reduce the overall value of the estate and therefore reduce estate taxes. The value of that business interest will be counted against the gift tax exclusion – $19,000 in 2025 – so gift carefully to avoid triggering gift taxes. Also, don’t forget to add it to the value of other gifts given to the same recipient.

Estate owners can also reduce estate taxes by establishing a family partnership. Ownership interest is easy to transfer within a partnership framework, so beneficiaries can slowly increase their share of the business without incurring taxes. Further, once the ownership shares are transferred, returns on those shares are not tallied as part of the estate’s value, so family members can profit from company ownership without the estate incurring additional taxes.

Business interests can also be transferred to family members through a trust, which can be used to protect assets from the expensive probate process.

The estate tax threshold is set to be reduced in 2026 – around half of the current $13.61 million estate tax threshold. If you’re hoping to reduce estate taxes during business succession, it’s important to consult with tax planning professionals now to properly anticipate and implement business succession strategies ahead of time.
If you’re selling the business to another party – If business succession means selling the company, tax planning services will focus on reducing the impact of capital gains and transfer taxes.

Buy-sell agreements may be arranged between the company’s current owners (like in the event of medical incapacitation or death) or between the owner(s) and an outside party. Tax planning strategies are different for each situation.

For example, the company’s owners can use life insurance policies – an approach known as cross-purchase agreements – to pay for taxes incurred as part of business succession. In this instance, each owner would hold a life insurance policy on other owners, or the business itself would be the named beneficiary.

When selling to a non-owner, taxes will be relevant to the buyer (transfer taxes) and seller (capital gains taxes). One tax planning strategy here is simple – time the transaction when conditions are favorable. This means accelerating or delaying the transaction (if possible) to avoid entering into a higher tax bracket, or, when transfer tax provisions would be more favorable, as they are highly time-dependent and are altered frequently.

It’s also important to specify, in great detail, what is included in the company’s sale, and what isn’t. Capital gains and transfer taxes are derived from the company’s valuation – so including or excluding certain assets may provide a more favorable tax outcome.

Another way to plan business succession is to establish an employee stock owners plan (ESOP). ESOPs allow business owners to gradually transfer ownership to employees while cashing out. They also provide unique tax-saving benefits to owners. However, they are complex to set up and many provisions apply, so consult with the tax planning professionals first.