If you intend to pass your company on to your children or other relatives, there are three ways to do it.
1. Leave it to them in your will
2. Give it to them before you die.
3. Sell it to them.
Each method has advantages and disadvantages. Let’s look at them.
Transfer by will
Your successors take control under the terms of the will. The advantage is that you remain in control of the company while you are living and can receive advisory fees. While still living, you may save on estate taxes. If a person dies owning a majority interest in a closely held corporation, the tax code contains provisions for reducing and deferring estate taxes.
Transfer by gift
You can make gifts of your company (shares). The advantages are that giving a series of small shares in your company can lead to valuation reductions that will reduce gift taxes. Or giving lifetime gifts and paying the gift tax may be cheaper than paying estate tax. The disadvantage is that you won’t receive any income from your own retirement if you give away your shares.
You can sell your company to your heirs by using the installment sale method. There are advantages: The sale covers the period of years which can keep you out of a higher tax bracket. You have a steady stream of income. Payments can be made manageable for your heirs. The disadvantage is that if you die before all installments are received, all outstanding installments will be included in your estate, meaning possible higher taxes.
Keep in mind that the law currently in effect eliminates estate taxes. That law is set to expire Dec. 31 so stay aware. Also be aware of exemption amounts once the current law expires. The exemption may be large enough in your personal situation that estate tax may not be an issue.
While we at PBS are aware of estate tax problems, we are not experts in that field. But we feel that the above information can be of value to some of you.
If you feel that your company is worth lots of money and you want to pass the company to your heirs, you may want to consult with an estate-tax expert. Of course, we can help with the valuation of your company.
New truckers and even seasoned veterans often ask about unloaded miles — i.e. deadhead miles. Some tax preparers and owner-operators seem to think that the income lost as a result of deadhead miles is a deductible item.
Not so! The cost to operate the truck — fuel, repairs, and maintenance covering those deadhead miles — are deductible. Additionally, many truckers often ask whether doing their own maintenance is a deduction. You cannot deduct your time for working in the equipment. The only benefit is that you are saving the cost of having someone else do the work. If you claim these deductions and are audited, you will be paying not only the tax owned, but penalties and interest as well.
This article has been presented by PBS Tax & Bookkeeping Service, a company which has been providing income tax and bookkeeping services to the trucking industry for over a quarter century. If you would like further information, please contact them at (800) 697-5153. Visit the website at www.pbstax.com.
Everyone’s financial situation is different. This article does not give and is not intended to give specific accounting and/or tax advice. Please consult with your own tax or accounting professional.
Find more news and analysis from The Trucker, and share your thoughts, on Facebook.