Accounting Articles > Business Continuation Planning:

What is business continuation planning?

Business continuation planning is the orderly transition of a business from one generation to the next. Why is this generally difficult? Taxes.

Let's explain this through a couple of scenarios:

Let's say that a business owner passes on, and no business continuation plan has either been put in place or begun. The Internal Revenue Service has guidelines established for the specific way that a business must be valued for estate tax purposes. Trust me, this isn't terribly reasonable. For our example, let's say that the entire estate is worth $5,000,000. This number is broken up as follows: $1,500,000 for the business, $500,000 in cash and securities, $200,000 in personal property and $2,800,000 in real estate. If the estate tax credit at the date of death is $2,000,000, then the estate would pay tax on $3,000,000 or roughly $1,650,000 in tax. If the business had been transferred to the next generation prior to the death, then the value of the estate would only be $3,500,000 and the tax would only be roughly $825,000. If in addition to the business being transferred, the real estate had been put into a trust, then there would be no estate taxes due at all.

Since you want the business to pass on to the next generation anyway, why not do it and not have to waste money on estate tax? If you are asking this question in the first place, then its probably time for a new accountant. Call our offices today. As highly recommended CPA's and Enrolled Agents practicing in Chicago, we have the experience to help you and your company. Call or e-mail one of our specialists today.