Your small business is your passion, but almost every business owner dreams of retiring one day. There are many ways to transfer business ownership, but have you considered gifting it?
When we think about gifting a small business, it’s almost always gifting to a family member. Of course, you could also gift your business to a friend, neighbor, or anyone you want!
Regardless, gifting a business is a big deal, so let’s talk about the basics.
At CSI Accounting & Payroll, we’ve worked with small business finance for over 50 years. Throughout that time, we’ve had many clients who have wanted to know the following about gifting a business:
- How do I know if it’s a good idea to gift my business?
- What are the tax implications for gifting a business?
- How do I gift my business? How can an accountant help?
Signs That It’s a Good Idea to Gift Your Business
Gifting a business is the second most popular method to transfer business ownership within a family or close relationship (aside from selling a business). With the gift method, there is no money exchanged – just the business’s stock or assets.
There are a couple of things to consider with this method.
First of all, since this is a gift, it won’t generate any retirement revenue once it’s out of your hands. It’s often very small businesses that are gifted because if you weren’t going to get much for your business in the first place, it’s less of a monetary loss to gift it.
(We’re also going to talk about tax implications in the following section, but if your business is small enough, the gift can potentially be tax-free!)
You may even be more likely to gift your business if you believe that the recipient has earned it or can improve it. This usually means they’ve personally worked in the business already and can ensure an ownership transfer that your customers won’t even notice. That keeps your customer base happy and your business strong.
Tax Implications for Gifting a Business
Before you gift your business, you’re going to need an appraisal done. That’s because if your business is valued at $13.61 million or less, some states may allow you to gift it completely tax-free.
Let’s elaborate a little. Since there’s no money that changes hands, you won’t pay capital gains taxes. Gift tax is the only tax you need to consider when gifting your business, but there’s some leeway before gift tax is applied.
That leeway is called the annual gift tax exclusion and the lifetime gift tax exclusion. Annually, (as of 2024) you can gift up to an $18,000 value to anyone without having to file a gift tax return. However, any amount over $18,000 must be reported and counts toward your lifetime exclusion of $13.61 million.
Exceeding the $13.61 million lifetime gift could make anything beyond that taxable, with gift tax rates ranging from 18% to 40% — much higher than capital gains taxes from selling a business.
How an Accountant Helps You Gift Your Business
If you partner with CSI to help you gift your business to someone, we start by referring you to a trusted partner for a business appraisal. Then, your attorney will do the paperwork to transfer ownership.
On our end, we prepare the tax documents, including a gift tax return if one is needed. We make sure everything is reported correctly to the IRS.
This is a fairly simple process, but it can be expensive and take some time to wait for third-party input. Regardless, many small business owners still take this route in transferring ownership – and if this is the method you prefer, CSI is happy to help!
Set up Your Gift for Success
Now that you know about the signs that you may want to gift your business, the tax implications to consider, and how an accountant can help, are you ready to check out monthly accounting services?
If so, please consider CSI Accounting & Payroll! To see if we can be a good fit for your business, click the button below for a free consultation:
Not ready to talk? That’s okay! First, learn more about how an accountant can set your business up for future success.
