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This week, the U.S. Congress will be holding a hearing on estate tax, which is scheduled to expire at the end of this year if Congress doesn't step in.
Many advocates for smaller business say that estate tax, more commonly known as the “death tax” among small business owners, is owed to the government when transferring a business after the owner’s death. Advocates believe this threatens succession plans in family owned business.
Currently, federal estate tax exempts the first $5,000,000 of an estate’s value and any assets of the estate beyond $5,000,000 are taxed at a top rate of 35%. If Congress does not step in by December 31, 2012, the federal estate tax will return to the level it was at in 2000 with a $1,000,000 exemption and a top rate of 55%. This will place many family businesses in a dangerous situation, forcing some out of business.
"Many small companies have non-liquid assets - capital that is tied up in real property, machinery and equipment - so heirs do not have cash to pay the estate taxes. Sometimes, a business must be sold - even at 'fire sale' prices - so the estate tax can be paid," Said Chairman Joe Walsh (fox.com).
Many entrepreneurs from across the country recently testified at a hearing, explaining how these hikes would impact their personal businesses. President of the American Rental Association and owner of Taylor Rental Center, Michael Flescher, commented on the issue saying "under current law my heirs would be able to continue to operate the business... [and] would continue to invest in new equipment and to provide services to the community where it is located. If the estate tax reverts to the levels of 2000... the economic security of my heirs will be uncertain," (fox.com).
Is your family business worried about the future of estate tax? Let us know on the Continuity Family Business Consulting Facebook Wall, linked HERE.
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